Lenskart isn’t alone. Urban Company, Ather and Bluestone are among the companies whose founders have transformed into promoters for their recent listings. This is a marked shift from the earlier trend of companies such as Paytm, Zomato, Swiggy, iXigo and Delhivery being listed as ‘professionally managed’, with no specific promoters.
What does the promoter tag mean, what is driving this change, and how have Sebi’s recent moves compelled founders to accept the formal accountability that comes with the tag? Mint explains.
Who is a ‘promoter’, and why did founders initially avoid the tag?
The status of ‘promoter’ in India’s regulatory landscape carries immense statutory responsibility. A promoter, as defined by the Sebi, is not necessarily the person or people who founded the company but those who exercise control over its affairs, whether directly or indirectly. For decades, this tag has been synonymous with family-run businesses in India.
“The issue is that people don’t want to be named as promoters. There’s never been a situation where for an IPO-bound company, people are saying that they actually want to be named a promoter, because there are more negatives or liabilities associated with the promoter tag than benefits,” said Bharath Reddy, partner in the general corporate practice at law firm Cyril Amarchand Mangaldas.
For many new-age companies backed by venture capital, the founders’ shareholding is diluted across multiple funding rounds, often falling well below the 10-25% threshold common in traditional businesses. This low stake provided the initial rationale for avoiding the promoter tag.
Earlier (at the time of Paytm’s listing in November 2021, for example), Sebi’s minimum promoter contribution (MPC) requirement was more stringent, requiring promoters to own at least 20% of the post-IPO shares and to be locked in for three years. This was also cited, conveniently, as the reason for founders not becoming promoters.
The other major challenge was employee stock options (Esops). Sebi previously barred promoters from owning Esops once the company was listed to avoid conflicts of interest.This was a concern for the highly diluted founders of new-age companies, whose individual stakes were often below 10%. For instance, Vijay Shekhar Sharma had a 9.1% stake in Paytm at the time of the company’s IPO, while Deepinder Goyal had a mere 4.7% stake in Zomato when the company was listed. In such scenarios, Esops are a crucial mechanism for rewarding founders.
Why do investors not like companies without promoters?
Indian investors have long been accustomed to promoter-driven stability. For instance, promoters hold more than 50% in Reliance Industries and more than 71% in TCS.
That’s because in India, promoters of a listed entity have considerable regulatory and fiduciary obligations, which hold them to a high standard of accountability. Disclosure requirements are greater at the time of filing, and after the IPO they are legally required to manage the company in a way that protects all public shareholders.
Other obligations include ensuring compliance with the minimum public shareholding (MPS) rules, actively disclosing any shares pledged or used as collateral, and rigorously adhering to Sebi’s Prohibition of Insider Trading Regulations. Crucially, they are subject to scrutiny regarding related party transactions (RPTs), under which any dealing between the promoter’s private entities and the listed company must be transparently approved.
When a founder-CEO closely identified with the company avoids the promoter tag, it signals to investors that he or she is legally minimising personal liability for these obligations. The question then is if the person steering the ship is not willing to accept the legal responsibilities of the owner, how can their long-term interests be aligned with those of the public market?
This question becomes even more important in cases where new-age founders and private equity investors use public listings to offload shares. Are they only interested in short-term returns, as their actions suggest?
Do other countries have similar dilemmas?
The Indian founder-promoter dilemma is in stark contrast to governance norms in major global markets such as the US, where companies like Meta, Alphabet and others employ dual-class share structures upon listing. In this model, founders retain voting control, often through special shares that carry 10 or 20 votes each, even if their ownership stake has been diluted to single digits. This structure legally ensures the founder drives the long-term strategic vision without needing the ‘promoter’ tag.
India’s regulatory framework, however, does not permit this kind of unequal voting rights structure for public companies. Thus, for an Indian founder to demonstrate long-term commitment and control to the market, the promoter tag becomes essential.
How did Paytm’s classification expose a regulatory loophole?
One97 Communications Ltd (Paytm’s parent company) set the precedent ahead of its IPO in 2021. The company filed for the offering without giving founder Vijay Shekhar Sharma the tag of promoter, instead classifying itself as a professionally managed company, as his direct equity stake was just 9.1%. This meant Sharma technically remained a public shareholder, which allowed him to accept a grant of 21 million Esops.
The move drew intense scrutiny from Sebi, which questioned whether Sharma was exercising de facto control while legally avoiding the obligations of a promoter. In May 2025, Sebi and One97 Communications finally reached a settlement that required the company to cancel the Esops issued to Sharma and his brother Ajay Shekhar Sharma, and barred Sharma from accepting fresh Esops from any listed company for three years.
What steps did Sebi take to make founders accept their role as promoters?
Sebi has implemented a series of crucial changes since 2021 to ensure founders adopt the promoter tag, by addressing the issues of excessive lock-in and ineligibility for Esops.
First, Sebi reduced the mandatory post-IPO lock-in period for the minimum promoter contribution (MPC) from three years to 18 months, making it easier for founders to plan for liquidity.
Second, the regular dropped its rigid definition of ‘promoter’ for a more pragmatic ‘person in control’ concept. This means if the founder holds a significant stake (around 10% individually, and around 20% as a group of promoters) and is also the CEO, the regulator wants them to be the promoter.
Third Sebi notified an amendment in September 2025 that clarified founders’ eligibility for Esops. “What Sebi is saying is if somebody is named as a promoter during the IPO and that individual was granted Esops or SARs (stock appreciation rights) earlier, they should not lose that benefit. The Esop should have been granted at least one year prior to the person being classified as a promoter,” said Reddy of Cyril Amarchand Mangaldas, clarifying, “A promoter still cannot be granted Esops.”
What does this renewed focus on the ‘promoter’ tag mean for companies, founders and investors?
Reddy said the clear classification of founders as promoters was the direct result of Sebi’s renewed focus and recent clarifications.
“Sebi has shifted its approach and is not letting people get away with not using the promoter tag,” said Reddy. “The regulator wants specific people to be named as promoters, so that in the event of any non-compliance, scam or mistake, there is an individual available to be held as the first person responsible or liable.”
The tag of promoter comes with the responsibility being the principal decision-maker and custodian of the company’s long-term interests. When startup founders are classified as such, they are explicitly recognised in the company’s organisational documents and regulatory filings as the entity exercising control.
Since these founders typically have small stakes in their companies by the time they list, taking on the role of promoter helps reassure investors that they will remain in charge, at least for a while.