Capital market regulator SEBI has said a promoter of a company may cease to be treated as a promoter under three conditions including when a new promoter replaces the old subsequent to an open offer. This would be subject to shareholder approval, the market regulator said.

Infosys experience Existing promoters may also be re-classified as public in case a company becomes professionally managed — that is, it does not have any identifiable promoter. These are companies where no entity holds more than 1 per cent, while fund houses, banks, financial institutions, insurers, FPIs and the like hold up to 10 per cent.

In case of an entity inherits a promoter’s stake, the inheritor would be classified as promoter.

Re-classification of promoters as public shareholders was taken up by SEBI after the founders of Infosys wanted to re-classify themselves as public shareholders after handing over the day-to-day operations of the company to a professional management in October 2014. The outgoing promoter would not be allowed to hold more than 10 per cent stake in the company and shareholder approval would be required if the outgoing promoter is to be retained as a key management person (MD/CEO/CFO/COO/Company Secretary) of the company for up to a maximum of three years.

The outgoing promoter would not have any special rights (such as a right to veto/ right to board seat) and cannot directly/ indirectly exercise control over the company.

Compliance norm Increase in public shareholding after re-classification would not be counted towards achieving compliance with minimum public shareholding requirement of 25 per cent SEBI said. Conversely, a public shareholder seeking to re-classify himself as promoter has to make an open offer and would be eligible for exemption from the said obligation.

Re-classification has to be reported to exchanges as a material event, SEBI said.

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