SEBI releases paper on special rights for pre-IPO investors

To attract investment in an IPO-bound entity, special rights are granted by companies to their pre-IPO investors and promoters. This is usually a part of the shareholder agreement between the company and the pre-IPO investors.

The regulator has said that in order to address the issue of certain shareholders enjoying special rights, it is proposed that shareholders enjoying special rights in listed entities should be subject to shareholders’ approval once in every five years.

Sebi’s consultation paper released on Tuesday proposes to strengthen corporate governance in listed entities by empowering shareholders

The paper highlights the permanence enjoyed by promoters on the boards of listed entities and seeks public comments by March 7.

To address this issue, the market regulator has proposed that the direction of any person serving on the board should be subject to shareholders’ approval from time to time at least once in five years.

The proposal comes in the wake of some media reports that some promoters enjoy permanence on company boards, giving them undue advantage, which is prejudicial to the interests of public shareholders.

Promoter-directors remain on the board even after their stake is significantly diluted and they lose control of the company.

At present, there are two ways by which a person can occupy a permanent seat on the board- by ​​inserting a clause in the Articles of Association (AOA) or by being appointed as a director on the board not liable to ‘retirement’ . rotation’ and without any defined tenure.

According to the paper, as on March 31, if a director is serving on the board of a listed entity without appointment or re-appointment subject to the approval of the shareholders during the last five years, the listed entity shall first seek the approval of the shareholders in the normal course for his continuation in the listed entity. For the meeting to be held after 1st April.