The Securities and Exchange Board of India (SEBI) is reassessing how companies preparing for initial public offerings (IPOs) define and disclose their promoters. This scrutiny arises from concerns that current practices may not accurately reflect who genuinely controls or influences a business.
Recent instances involving tech-driven firms and private equity-backed companies have shown that individuals identified as promoters in draft prospectuses often lack real influence over operations and strategic decisions. Consequently, SEBI is considering whether it should mandate IPO-bound companies to clarify the criteria used in identifying promoters, moving beyond traditional labels or historical ties. The focus would shift to actual control and influence instead of historical affiliations or shareholding patterns.
To enhance transparency, these companies may need to disclose significant beneficial owners—those ultimately controlling the business—and provide reasons for not naming such individuals as promoters. They may also have to verify that these persons or entities are not exerting indirect control through informal arrangements or side agreements.
Identifying promoters accurately is vital for IPO disclosures, as it serves as a key indicator of accountability, stability, and long-term commitment for investors. Misclassifications can mislead potential shareholders about key decision-makers and those backing the enterprise, while those identified as promoters face legal obligations and restrictions, potentially excluding them from benefits like employee stock options.
Moreover, instances have been observed where companies effectively controlled by private equity funds list former founders as promoters in regulatory filings, despite decision-making authority resting with institutional investors. This practice can obscure governance and the influence of real controllers from public disclosures.
Another aspect under consideration includes exempting companies nearing listing from the mechanical application of rules regarding the reclassification of promoters to public shareholders, recognizing the complexities of pre-IPO ownership structures. In the absence of a clear framework, investment bankers often play a role in determining promoter status for offer documents, resulting in inconsistent interpretations.
SEBI is also evaluating a proposal to eliminate the rule that defines control based solely on a person holding 15% or more voting rights, suggesting instead an alignment with takeover regulations that emphasize the actual capacity to influence management and policy decisions over numerical thresholds.
Following further discussions, SEBI is expected to issue a consultation paper outlining these proposals.
Published on November 26, 2025.
