SEBI Proposal May Bolster IPO-bound Founder’s Rights

The Securities and Exchange Board of India’s proposal to ease rules on superior voting rights (SR) shares could solve some legacy issues for startup founders looking to publicly list their companies, industry insiders said.

The proposal has the potential to help founders dilute stakes without losing control, make tax structures more efficient and help in succession planning.

Top-tier startups such as paytm, Zomato, PolicyBazaar, Nykaa and Delhivery, which are expected to complete their Initial Public offerings this year are, however, unlikely to get the benefits as the proposals are still at the consultative stage.

The capital markets regulator has given industry stakeholders time till July 30 to submit their feedback.

Issuing SR shares is a relatively new concept by Indian companies proposing to list on the capital markets. These shares confer higher voting rights to promoters than lay investors and founders of major US firms like Google, Facebook, Snap Inc. and Lyft hold such shares despite going public.

Sebi had unveiled guidelines for SR shares in 2019 and the latest proposals are aimed at taking another look at the same.

The regulator is considering some relaxation such as doing away with timelines for founders to issue SR shares before an IPO. Currently, founders should issue SR shares six months before going public. “Sebi has received feedback from market participants that the requirement is onerous, which delays such issuer companies from raising funds from the capital market,” the regulator said in its latest paper. S-ET

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