I had a doubt regarding promoters holding in an public listed company. Suppose Ambani family owns 47% as promoters of RIL. Now my query is did Ambani’s paid 47% of amount during IPO.
To make it simple, let’s say I will issue IPO for my company xyz and decide to hold 51% as promoters holding. Apparently rest 49% will be bought by others(retailers institutions etc). My question is does this mean to remain promoter with 51% stake, will I have to buyout those 51% of outstanding shares with cash?
During ipo promotor did not have to pay for the issue of shares of their company
Here is the definition of a promoter as per the companies act, 2013:
“promoter” means a person—
( a ) who has been named as such in a prospectus or is identified by the
company in the annual return referred to in section 92; or
( b ) who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director or otherwise; or
( c ) in accordance with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act:
Provided that nothing in sub-clause ( c ) shall apply to a person who is acting
merely in a professional capacity;
To answer your query, if you satisfy any one of the above three conditions then you remain a promoter of the company. Shareholders can exercise control over a company by means of ordinary resolutions and special resolutions. An ordinary resolution will require simple majority of the shareholders present and voting. A special resolution will require 3/4ths of the majority to vote in favour of the resolution. An ordinary resolution (where the promoter does not participate) suffices to vote out an outgoing promoter. This route is applicable if you want to declassify yourself as a promoter. On the other hand, even if you don’t want to declassify yourself as a promoter, in case of a hostile takeover and subsequent open offer by another party you could cease to be a promoter since the three conditions mentioned in the definition will not be satisfied.
@dheeraj As the name itself say promoters are the persons who promoted the company and bought equity .in normal course if it is an IPO all will get shares at same price but if it is an offer for sale so as to list ,by shareholders of an already existing but unlisted company the original shareholders (normally promoters selling part of own holding ) of this unlisted company surely must have bought shares at much lower price at the inception of company. it is not a requirement to have promoters in a company or to hold big quantity of shares .L&T do not have any promoter wherein MRF have promoters who are holding less than 30 shares .
No Dheeraj, they need not have to.
The shares will be issued to them as a virtue of promoting (starting the company, investing in it, spending time and efforts towards managing its day to day operations) and developing (bring new business, manage existing) the business.
Suggest you read this chapter on Varsity to understand the IPO process and how shares are allotted.
Just to clarify: you can still be a promoter with less than 51% stake in a company.
I already gave example of MRF where a promoter hold just 38 shares and few hold less than 100 shares .total promoter shareholding is less than 28% held by 106 shareholders means the company has 106 promoters.
Thanks for your replies . Actually the part I was confused was e.g. I decide to make my company publicly listed and raise an IPO of 1000 shares of 10 RS each. At the same time I declare that I as a promoter will be holding 51% stake.
Hence I will be owning 510 shares worth 5100 RS and others(ii and retail) will be buying 490 shares worth 4900/-. I assumed that, without paying a single paise, 5100/- was created out of thin air since actual money was paid by others.
But now I understand from your replies that 5100/- the amount that promoter gets is actually the amount for spending time and effort in establishing and running the company.