Startup founders to have 5-yr sunset clause in proposed superior voting rights regime

Startup founders to have 5-yr sunset clause in proposed superior voting rights regime

  • The high-level committee that was constituted by the capital markets regulator Securities & Exchange Board of India (SEBI) has proposed a sunset clause after such startups go public with dual-class shares.
  • The committee has mooted that superior rights (SR) shares can be issued only to the ‘promoter’ of a private company and such firms will be allowed to go public with a ordinary share issue provided the SR Shares are held by the promoters for at least a year prior to filing of the draft offer document with SEBI.
  • These SR shares shall get converted into ordinary equity shares on the fifth anniversary of the listing of the ordinary shares of the company.
  • The SR shares shall get compulsorily converted into ordinary equity shares in the event of a merger or acquisition of the company or whenever these are sold by the identified promoters who hold such shares or in the case of demise of the promoter(s).
  • Companies whose equity shares are already listed and traded on a recognised stock exchange for at least one year, shall be permitted to issue FR shares by way of rights issue; bonus issue pro rata to all equity shareholders; or a Follow-on Public Offer (FPO) of FR shares.


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