Sebi seeks to relax norms of issue of shares with 'superior voting rights'

Move likely to give more flexibility to founders of new-age companies aiming to raise capital and taking their firms public

The Securities and Exchange Board of India (Sebi) has proposed to ease the framework governing issue of shares with superior voting rights (SR shares), a move that will give more flexibility to the founders of new-age companies when it comes to raising capital and taking their company public.

In a discussion paper issued on Thursday, Sebi has sought market feedback on three key areas in the existing framework that can be tweaked. These include the net worth requirement of the promoters, minimum holding period of SR shares and structures eligible for SR share issuances.

At present, SR shares can be issued only to founders who are not part of any promoter group whose collective net worth is Rs 500 crore.

“SEBI has received feedback from market participants on the current requirement that, an SR shareholder shall not be part of promoter group whose collective net worth is more than Rs. 500 crores, is too onerous to comply and is keeping prospective SR shareholders away from utilizing the SR shares framework,” Sebi has said in a discussion paper seeking comments on whether this threshold should be increased or whether r net-worth requirement for SR shareholder should be determined at an individual or promoter group level.

Also, currently SR shares can be granted only to promoters and founders. Sebi has said that even trusts and other corporate structures could be made eligible.

“Whether holding companies, registered family trust, partnerships where promoters/ founders are in control or sole trustees, can also be permitted to hold SR shares as long as such promoters, founders, trustees continue to hold executive positions in the issuer company?,” the regulator has said in a discussion paper.

Sebi has also proposed to ease the six-month minimum holding period for SR shares prior to the filing of the red herring prospectus (RHP) for an IPO.

The regulator has said that it has received feedback from market participants that the current requirement is onerous as it delays raising funds from the capital market.

Sebi has invited market feedback till the end of this month following which it will firm up the new framework.

Issue of shares with superior voting rights is common in the US markets, the most prime destination for listing of tech firms.

Areas where relaxations could be made

. Minimum holding period 

. Net worth requirement

. Eligibility criteria