SEBI clarifies shareholding transfer rules for intermediaries: What counts as 'change in control'?

The Securities and Exchange Board of India (SEBI) on Friday issued a clarification on the treatment of shareholding transfers and transmissions among intermediaries, including investment advisers, research analysts, and KYC registration agencies. In a circular dated December 27, the markets regulator outlined scenarios where such changes in shareholding would or would not be considered a "change in control," a classification that necessitates prior SEBI approval and fresh registration.

According to the circular, transfer of shareholding among immediate relatives, as defined under SEBI’s takeover regulations, will not be considered a change in control in the case of unlisted body corporate intermediaries. The transmission of shareholding, whether to immediate relatives or others, will also not be deemed a change in control.

However, for proprietary firms, the transfer or inheritance of business ownership will be treated as a change in control, requiring SEBI’s prior approval and fresh registration in the name of the transferee or legal heir.

In the case of partnership firms, the rules depend on the number of partners. If the firm has more than two partners, an inter-partner transfer of ownership interest will not be regarded as a change in control. However, if there are only two partners, the death of one will dissolve the firm unless a new partner is inducted, which would be treated as a change in control.

The transmission of a deceased partner’s ownership interest to legal heirs, as specified in the partnership deed, will not constitute a change in control.

The circular also specifies that incoming entities or shareholders who assume a controlling interest following such transfers or transmissions must meet the "fit and proper person" criteria outlined in SEBI’s Intermediaries Regulations, 2008.

SEBI directed Bombay Stock Exchange, the supervisory body for investment advisers and research analysts, to disseminate these provisions and amend relevant by-laws, guidelines, and SOPs.