SEBI's regulatory body proposes listing rules for investors in startups

The regulatory body of SEBI on 15 December 2020, gave a proposal for reducing the compulsory shareholding period to one year, before the listing of the investors, who owe stakes up to 25 per cent or higher.

The Securities and Exchange Board of India (SEBI) has given a proposal for modification of several rules with an aim for encouraging the startups going public and to get listed on the Innovators Growth Platform (IGP). The regulatory body of SEBI has suggested for reduction of a compulsory shareholding period to one year before the listing of the investors who owe stakes up to 25 per cent or higher.

SEBI also proposed to raise an open offer for investment-related deals; for allocating shares at a higher percentage to anchor investors during public issues and recommended special rights for promoting institutional investors. SEBI opined that the two-years of the shareholding period before the listing is a cumbersome condition and reduction of the shareholding period to one year would help the startups in getting more investors who incline towards an early listing period. This will also make companies eligible for IGP listing.

The IGP intended to promote issuers who are active in the field of information technology, data analysis, nanotechnology, etc. The recommendations of SEBI make IGP more lucrative for startups as it would help them in raising capital and attract more investors. SEBI has also given a proposal for permitting the companies to allocate shareholdings to anchor investor before the issue opening up to 60 per cent of the size of the issue on a discretionary basis.

It gave a recommendation wherein it allowed the issuer companies to seek listing on the IGP for issuance of differential or superior voting rights to promoters over equity shares. It further stated that special rights should continue that provides affirmative voting rights and board seats to the existing institutional investors holding 10 per cent (in excess) of the share capital. A further recommendation was made by SEBI, whereby it proposed an easier way of migration for startups from IGP to the main listing board.

Startups are the budding companies that should be given opportunities to expand their financial options, enhancement of visibility, business allocation, attract more number of investors, etc. This is an emerging sector that has been doing really well in promoting the economy. There is an urgent need that this sector should be offered the best-in-class services so that its' survival in the market becomes easier. Hence, SEBI has proposed relaxation of rules that will help in promoting the startups.