SEBI proposes easier rules for startup listings

In a measure that could bring relief to promoters of startups, the Securities and Exchange Board of India (Sebi) is in favour of relaxing the rules on the minimum promoters’ contribution at the time of an initial public offering (IPO).

As startup founders typically dilute their stakes in the course of fundraises, they are often unable to meet the minimum 20% stake required post the IPO. In a discussion paper released, Sebi has also recommended that listing regulations be eased such that the application of the regulations is more dynamic.

An expert committee’s suggestions for the ease of doing business and for the harmonisation of Sebi (Listing Obligations and Disclosure Requirements) Regulations (LODR Regulations) and of Sebi (Issue of Capital and Disclosure Requirements) Regulations (ICDR Regulations) are contained in the paper.

The consultation paper notes that the LODR regulations, which are applicable on the basis of market capitalisation, remain effective “forever” even if the figure falls and the entity moves out of top rankings. The committee has suggested that a sunset clause be added, so that if the ranking of the entity changes for three consecutive years, the regulatory provisions should cease to be applicable for the listed entity.