SEBI Issues New Guidelines on Share Transfers & Transmission

The Securities and Exchange Board of India (SEBI) issued a circular on Friday introducing guidelines for the transfer and transmission of shareholding among immediate relatives and within specific types of intermediary firms. The aim is to simplify regulatory processes while protecting investor interests in the securities market.

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The circular provides detailed rules on ownership transfers in intermediary entities like investment advisors, research analysts, and similar organizations. SEBI clarified that share transfers between immediate relatives, as defined under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, will not constitute a change in control. Immediate relatives include spouses, parents, siblings, and children. Similarly, the transmission of shares, whether through inheritance or other means, to immediate relatives or others will also not be regarded as a change in control.

Jyoti Prakash Gadia, Managing Director at Resurgent India, noted that SEBI’s clarification on ownership and operational structures of registered professional entities such as investment advisors and research analysts aligns with legal norms governing entity structures, whether proprietary, partnership-based, or corporate. He emphasized that the flexibility for cases involving death or intra-family transfers, which do not affect control, is consistent with established legal principles.

For proprietary firms, SEBI mandated that inheritance-based ownership changes will constitute a change in control, requiring the new owner to seek prior SEBI approval and reapply for registration in their name. For partnership firms, ownership transfers among existing partners will not trigger a change in control if the firm has more than two partners. However, if a firm with only two partners loses one partner, the partnership will dissolve. Adding a new partner in such cases will be treated as a change in control, necessitating SEBI’s approval and fresh registration. Notably, partnership deeds that allow legal heirs to replace a deceased partner can avoid triggering a change in control.

SEBI also stipulated that individuals or entities gaining control through share transfers or inheritance must satisfy the regulator’s "fit and proper person" criteria to ensure they are qualified to maintain investor trust and regulatory compliance.

These guidelines take immediate effect. SEBI has instructed regulatory organizations, such as the Investment Advisors and Research Analysts Associations, to notify their members and incorporate the provisions into their respective operational frameworks.