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SME IPO Readiness · Question
Short answer
A promoter is a person who is in control of the company, who is named as promoter in the offer document or annual return, or whose directions the board is accustomed to act on. The promoter group is wider: it covers close relatives and companies, firms or trusts linked to the promoter by ownership or control. The classification decides who carries disclosure duties and share lock-ins.
Securities rules look at substance, not labels. A person who steers the business but holds a small shareholding may still be treated as a promoter, while a relative who merely holds shares and plays no role may fall into the promoter group instead.
Promoters are normally the founding individuals or a controlling entity. Where the promoter is an individual, the promoter group usually includes immediate relatives such as spouse, parents, siblings and children, along with in-laws in certain cases, and entities in which they hold a meaningful interest or serve as controlling members. Where the promoter is a company, subsidiaries, holding companies and entities under common control come in.
| Consequence | Effect |
|---|---|
| Disclosure | Background, holdings and dealings appear in the offer document |
| Lock-in | A minimum share of post-issue capital is held back for a stated period |
| Contribution | Promoters must hold a minimum stake in the issue |
| Group companies | Related entities and their finances may need disclosure |
Map every person and entity touching the business, including family firms and trusts. Record shareholding, directorship and financial dealings for each. A professional advisor or independent investor is not a promoter merely because of those roles. Where someone insists they are not a promoter, the regulator looks at facts.
Do not exclude to avoid lock-in
Reclassifying a controlling relative to reduce the locked-in share is a recognised red flag. Be conservative and disclose.
Definitions are detailed and have been updated; confirm current wording with your legal counsel.
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