By Varun SriramIn the last several years, across India’s listed company backdrop, a subtle but significant shift has been underway in how promoter families are viewing succession planning. As first and second-generation entrepreneurs confront the realities of longevity, generational transition, and increasingly complex family structures, traditional modes of succession such as simple testamentary transfers or inter se family arrangements are falling short in meeting objectives. In their place, private family trusts are emerging as a preferred vehicle for holding promoter shareholdings in listed companies. This trend is not merely about estate planning in the narrow sense, but it reflects a broader re-engineering of governance, wealth stewardship and risk management. By transferring shares to private trusts, families seek to ring-fence ownership from personal exigencies, mitigate succession disputes, ensure unified voting and control, and create a long-term framework that can outlive individual family members. At the same time, such transfers raise nuanced questions under corporate and tax laws including from a SEBI regulatory perspective.There has been recent news, outlining how business families in India are pursuing SEBI to recognise daughters-in-law as ‘relative’ under SEBI takeover code. Let us break down the context and relevance of this to succession planning with a listed company angle.What is SEBI Takeover CodeSEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, generally known as the Takeover Code are the regulations that inter-alia governs and deals with change in control in the listed company landscape. Per the code, alterations to significant shareholding (25% or more) or control of listed companies results in what is called an ‘open offer’ requirement. Open offer means an offer made to buy at least 26% of the shares from public shareholders. This open offer needs to be made by the party making the acquisition from certain shareholders that would trigger change in significant shareholding or control of the listed company. Open offer enables public shareholders to get a fair opportunity to participate in any significant acquisition or change of control eventuality. Exemptions to Open Offer requirement – Immediate RelativesWhile the rationale for open offer is to protect public shareholders, Takeover Code recognises that not all transfers of shares in listed companies should result in open offer including where such transfers are inter-se immediate relatives. ‘Immediate relatives’ is defined under the Takeover Code to mean any spouse of a person, and includes parent, brother, sister or child of such person or of the spouse. At this juncture, it may be noted that said definition does not include daughters-in-law or sons-in-law. SEBI Norms for transfers to private trust structures While transfer of shares to ‘immediate relatives’ is exempt from open offer requirements as per Regulation 10 of the Takeover Code, there is no express exemption for transfer of shares to private trusts of promoter families.Section 11 of the Takeover Code however enables SEBI to accept applications from shareholders seeking exemption from open offer requirements and based on merit of each case, either grant or reject the exemption that is sought by the applicant. Using this provision, several promoters of listed companies in the last decade or so have applied for transfer of shares to family private trusts. In many instances, the exemptions have been granted based on bona fides and conditions that SEBI has prescribed. In fact, SEBI has issued a Circular in 2017 taking cognizance of this aspect and summarized conditions usually under which such applications are granted. Some of the key and relevant conditions for the purposes of this article are that (i) the Trust is in substance, only a mirror image of the promoters’ holdings and consequently, there is no change of ownership or control of the shares or voting rights in the target company and (ii) only individual promoters or their immediate relatives or lineal descendants are Trustees and beneficiaries.This meant that SEBI considered favourably for transfer of shares to such private trust structures only where immediate relatives were trustees and beneficiaries. This is where the anomaly lies since daughters-in-law or sons-in-law not forming part of the definition of immediate relatives would mean that if they were trustees, the trust structure would not satisfy the conditions as enumerated by SEBI. The way forwardSuccession planning in promoter led Indian companies must be viewed through a commercial and generational standpoint, not a narrow, technical one. The objective of the Takeover Code is to protect public shareholders from adverse changes in control, not to obstruct bona fide inter-generational transitions within promoter families where control, intent and economic ownership remain aligned. Modern Indian families and businesses no longer operate within rigid, patriarchal structures. Daughters-in-law often play substantive roles in business governance and are integral to succession plans. Excluding them from the definition of ‘immediate relatives’ under the Takeover Code creates artificial compliance triggers.Given this, it needs to be seen if SEBI, having generally recognised that family trust transfers made purely for succession purposes do not undermine investor protection, codifies the position by including in-laws within permitted succession structures along with necessary safeguards to protect the integrity of the system.(Varun Sriram is Partner, JSA Advocates & Solicitors. Views expressed are personal)
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