Prior Approval for Change in control: Transfer of shareholdings among immediate relatives and transmission of shareholdings and their effect on change in control
Summary
This circular clarifies that transfers or transmissions of shareholding among immediate relatives do not constitute a change in control for unlisted intermediaries. It specifies that transmission in proprietary firms constitutes a change in control requiring prior approval, while partnership firm changes depend on specific deed clauses and partner counts. Incoming entities resulting from such transfers must satisfy the fit and proper person criteria under SEBI Intermediaries Regulations.
Text
In following scenarios, change in shareholding of the intermediary will not be construed as change in control: a) Transfer of shareholding among immediate relatives shall not result into change in control... b) Transfer of shareholding by way of transmission to immediate relative or not, shall not result into change in control.
Immediate relative shall be construed as defined under Regulation 2(l) of SEBI SAST Regulations which inter-alia includes any spouse of that person, or any parent, brother, sister or child of the person or of the spouse;
In case of an intermediary being a proprietary concern, the transfer or bequeathing of the business/capital by way of transmission to another person is a change in the legal formation or ownership and hence by the definition of change in control, such transmission or transfer shall be considered as change in control. The legal heir / transferee in such cases is required to obtain prior approval and thereafter fresh registration shall be obtained in the name legal heir/transferee.
In case a SEBI registered entity is registered as a partnership firm with more than two partners, then inter-se transfer amongst the partners shall not be construed to be change in control. Where the partnership firm consists of two partners only, the same would stand as dissolved upon the death of one of the partners. However, if a new partner is inducted in the firm, then the same would be considered as a change in control, requiring fresh registration and prior approval of SEBI.
Where the partnership deed contains a clause that in case of death of a partner, the legal heir(s) of deceased partner be admitted, then the legal heir(s) may become the partner (s) of the partnership firm. In such scenario the partnership firm is reconstituted. Bequeathing of partnership right to legal heir(s) by way of transmission shall not be considered as change in control.
Incoming entities/ shareholders becoming part of controlling interest in the intermediary pursuant to transfer of shares from immediate relative / transmission of shares (immediate relative or not), need to satisfy the fit and proper person criteria stipulated in Schedule II of SEBI (Intermediaries) Regulations, 2008
Source: SecMarx — Prior Approval for Change in control: Transfer of shareholdings among immediate relatives and transmission of shareholdings and their effect on change in control. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.