The debate around promoter classification of startup founders who enjoy the same powers but do not have to comply with the same restrictions is raised by a proxy advisory firm, IIAS.

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Experts are of the view that there needs to be regulatory steps taken to make startup founders with control and power over companies to comply with the same rules as promoters. Nisha Poddar discusses this issue with experts Hetal Dalal, President and COO, IiAS and Sandeep Parekh of Finsec Law Advisors in the show 'Big Deal'.

Dalal remarked, "In many modern-day companies, the term 'founders' lacks a standardised definition within regulatory frameworks. It is not even considered a key managerial personnel (KMP) position.

Consequently, we observe a group of founders who effectively steer the company, behaving much like promoters, yet they are not officially designated as such. While they enjoy the privileges of this control, they do not bear the responsibilities typically associated with being a promoter."

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She went on to explain, "We have a situation where certain founders play a pivotal role in a company's future but are not formally categorised as promoters. This is the crux of the ongoing debate. Is this the right approach to take?

Traditionally, in companies started by families or individuals, they classify themselves as promoters and, as a result, enjoy the same privileges along with a slew of additional responsibilities.”

Parekh said, “I would actually vote for SEBI’s intention a few years back to move away from the concept of promoters and move to a much more accurate and factual inquiry of who's the control person.

But from the biggest picture perspective, I would say, we should have very, very limited amounts of responsibility for shareholders again, whichever way you look at it, these are shareholders.”

For a full interview, watch the accompanying video

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First Published:Sept 7, 2023 6:06 PM IST