SEBI Update - Prior approval for change in control: Transfer of shareholdings among immediate relatives and transmission of shareholdings and their effect on change in control

SEBI issued a circular, addressing significant issues regarding the transfer of shareholding, the change of control, and its implications for certain intermediaries. The circular aims to provide clarity on the effects of transferring or transmitting shareholding, particularly among immediate relatives, and its implications for the change in control of the intermediary firms.

Transfer or Transmission of Shareholding in Unlisted Body Corporate Intermediaries

In the case of unlisted body corporate intermediaries, the circular stipulates that certain transfers or transmissions of shareholding will not result in a change of control. Specifically:

Transfer Among Immediate Relatives: A transfer of shares between immediate relatives (as defined under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011) will not be construed as a change in control. The definition of “immediate relatives” includes spouses, parents, siblings, and children of the person involved, or the spouse of the person.

Transmission of Shareholding: Similarly, the transmission of shares to an immediate relative, whether by inheritance or other means, will also not result in a change in control. Transmission refers to the transfer of ownership that occurs due to events such as death or incapacity.

Transfer or Transmission in Proprietary Firms

A proprietary firm is a type of intermediary where one individual is the sole owner. According to the circular:

Change in Ownership: If the owner of a proprietary concern (such as an investment advisory firm) transfers or bequeaths the business or capital to another person, it will be treated as a change in control. In such cases, the transferee must obtain prior approval from SEBI, and a fresh registration under the SEBI regulations must be obtained in the name of the new owner. Transmission of Ownership: If the transmission occurs due to the death of the owner, this would also lead to a change in control, necessitating the approval of SEBI and fresh registration. The legal heir or transferee is expected to adhere to the fit and proper criteria as stipulated by SEBI regulations.

This provision ensures that the control of proprietary firms remains transparent and under regulatory oversight, especially when the original owner is no longer involved in the business.

Change in Control in Partnership Firms

In partnership firms, the dynamics of cont