Capital markets regulator the Securities and Exchange Board of India (SEBI) is considering accommodate various flexible proposals to moderate the listing of startups in the stock exchanges in the country. This will encourage domestic startups to go public.
If this supposed move is implemented, it would facilitate entrepreneurs to class themselves as ordinary shareholders and relieve them of the mandatory three-year lock-in clause.
Also, if a Private equity firm is being reviewed as promoters of a company, eventually it will pull in a lot of fiduciary responsibilities and disclosure requirements. Besides, they will also be subjected to SEBI’s insider trading rules. Hence, the market controller might consider exempting promoters of their fiduciary responsibilities and permitting PE backers enough stakes in a firm to release them as promoters.
Due to the rigid IPO rules like one year locked in for pre-IPO investors after listing, three years of lock in period of 20% of promoters’ shares and requirement of onerous consideration for delisting itself as a promoter, Indian startups take the acquisition path for its departure.
Sandeep Parekh, founder, Finsec Law Advisors commenting on the possible amend said
Relaxing the promoter reclassification norms would be a move in the right direction as it would provide more flexibility to startups planning to list. These companies operate with completely different business models and hence need more lenient regulations. In order to mitigate risk of lenient regulations, the regulator could keep trading in these companies confined to wealthy investors and institutions.
Earlier this year, National Stock Exchange (NSE) was reportedly in a dialogue with SEBI to relax startup listing norms on its platform Emerge ITP, a regulated platform connecting growing ventures with potential investors with or without IPO.
Additionally, in a bid to bolster angel funding in the home grown startups,the SEBI board has approved the modification of the Alternative Investment Fund (AIF) for doubling the maximum investment limit.