Sebi issues guidelines on share transfer, ownership changes for intermediary cos

The Securities and Exchange Board of India (Sebi) on Friday issued a circular outlining guidelines on the transfer and transmission of shareholding among immediate relatives and in specific types of intermediary firms, with the aim of streamlining the regulatory process and safeguarding investor interests in the securities market.

The circular provides clarity on the rules surrounding ownership transfers in intermediary firms, particularly investment advisors, research analysts, and related entities.

Sebi clarified that share transfers among immediate relatives will not be considered a change in control. Immediate relatives, as defined by Sebi’s (Substantial Acquisition of Shares and Takeovers) Regulations, include spouses, parents, siblings, and children.

Additionally, the transmission of shares to immediate relatives or others, whether through inheritance or otherwise, will not be viewed as a change in control.

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Jyoti Prakash Gadia, managing director at Resurgent India, stated that Sebi’s clarification regarding the ownership structure and operational aspects of registered professional agencies like investment advisors and research analysts aligns with the legal requirements tied to the constitution of entities, whether proprietary concerns, partnerships, or corporate bodies. He added that the flexibility provided in cases of death or intra-family transfers, which will not affect ownership, is consistent with the legal principles governing ownership structures.

For proprietary firms, Sebi specified that if ownership is transferred or passed down by inheritance, it will be considered a change in control. In such cases, the new owner must obtain prior approval from Sebi and apply for fresh registration under their name.

For partnership firms, Sebi stated that ownership transfers among existing partners in a firm with more than two partners will not be regarded as a change in control. However, if a firm with only two partners undergoes such a change, the partnership will be considered dissolved upon the death of one partner. If a new partner is added, it will be considered a change in control, requiring Sebi’s approval and fresh registration.

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The circular also permits legal heirs to step into a deceased partner’s place without triggering a change in control, provided the partnership deed allows for such a reconstitution.

Entities or individuals gaining controlling interests through share transfers or inheritance must meet the fit and proper person criteria as specified by Sebi. This ensures that those assuming control are deemed qualified to uphold investor interests and regulatory standards.

The new rules will take effect immediately, with Sebi directing regulatory bodies such as the Investment Advisors and Research Analysts Associations to inform their respective members and incorporate these provisions into relevant guidelines and operating procedures.

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