SEBI Decides to Lower the Minimum Lock-in Period for Promoters Post IPO

Market regulator SEBI has decided to lower promoters’ minimum lock-in period after the company’s stock market listing from 3 years to 18 months. In addition, it has decided to modify regulations regarding ESOPs (employee stock option plans) and AIFs (alternative investment funds).

The board has also taken up a series of other decisions this Friday. For instance, SEBI has agreed to shift from the concept of promoters to ‘controlling shareholders.’ Moreover, the lock-in period of pre-IPO shareholding for non-promoters and the lock-in period for venture capital funds will be reduced to 6 months instead of 1 year.

So, what are the conditions to be met?

The lock-in period for promoter investment for post-IPO would be 18 months from the date of IPO allotment under the following circumstances:

• The object of a particular issue should come with an offer for sale (OFS) only.
• The firm will use proceeds from its public listing for purposes other than capital expenditure for a particular project.
• If a firm goes for a combined fresh issue and offers for sale, the object of the issue involves financing expenses other than capital expenditure.

Key Decisions of SEBI – At a Glance

Apart from reducing the lock-in period, SEBI has decided to lower the disclosure burden for companies during IPOs. It will relax the disclosure requirements for group companies and remove companies with common investors from the promoter group.

Controlling Shareholders

SEBI has, ‘in principle,’ agreed to shift from the concept of promoter to ‘controlling shareholder.’ This will bring about much-needed improvements in the domestic capital market. However, the process will take some time as it requires a complete overhaul of a series of rules and regulations.

SEBI plans to consult with other regulators to plan and draft necessary amendments to execute this proposed change. As per a SEBI statement, most companies today come with diversified shareholding with no identifiable promoters. Moreover, there seems to be an increased focus on shifting corporate responsibilities to company management or the board of directors.

Experts feel this concept will help regulators pinpoint financial responsibilities on individuals if companies do not have any promoter shareholding.

Relaxation of ESOP Framework

In 2021, SEBI combined ‘share-based employee benefits’ and ‘sweat equity’ norms within one regulation titled ‘Share-based Employee Benefits and Sweat Equity Regulations 2021. With this rule, SEBI has approved an extension of appropriating unappropriated inventory to 2 years.

In addition, this proposal will abolish the minimum lock-in period and vesting period for share benefit schemes in case of death. The maximum annual limit for sweat equity shares is fixed at 15% of current share capital. However, the limit for listed companies is 25%, while those listed on Innovators Growth Platform is 50%.

Modifications in AIF Regulations

SEBI will also be eliminating restrictions regarding investments in portions of investable funds of VFCs (venture capital funds). It will approve category-I AIF-VCF to make an investment of a minimum of 75% of investable funds in unlisted shares. Alternatively, investment can be made in companies listed on the SME exchange or are about to be listed.

Wrapping Up

Financial experts feel that these modifications in the regulatory framework will be beneficial for the start-up community and their investors. In addition, such changes will bring positive long-term financial impacts on more than 50 unicorns of India.

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Frequently Asked Questions

1. When will SEBI abolish the disclosure obligations?

From 1 April 2022

2. What is the minimum contribution of promoters for the IPO of a company?

The minimum contribution is 20% of their stakeholding post IPO.

3. What was the initial minimum lock-in period for promoters after IPO?

The initial minimum lock-in period for promoters after IPO was 3 years. SEBI has now decided to slash it to 1.5 years.