Promoter
Also called: Selling shareholder · Topic: Factors of Production, Entrepreneurship and Startups · NCERT: Beyond NCERT
Meaning
A promoter is the person, family or company that controls a company and is named as its promoter in the company's offer documents. Offer documents are the papers a company files with SEBI before selling shares to the public. Promoters usually start the business or hold the controlling stake, so they decide how it is run. In an IPO (a company's first sale of shares to the public), a promoter can sell some of its existing shares through an Offer for Sale (OFS). In an OFS the money goes to the promoter, not to the company. After the company lists, the promoter must also bring its stake down until the public holds at least the share required under Minimum Public Shareholding rules.
Example
In its October 2024 IPO, Hyundai Motor India sold no new shares. All the shares came from its promoter, the Korean parent Hyundai Motor Company, which sold 14,21,94,700 shares, or about 17.5% of the company. The Indian company got none of the money, and the parent kept control.
Don't confuse with
- Selling shareholder: this is anyone who sells existing shares in an OFS. It can be the promoter, but it can also be a private equity fund or another early investor. A selling shareholder is not always a promoter. Under SEBI's ICDR rules, the shares offered in an OFS must have been held for at least one year before the draft papers are filed.
- Entrepreneur: an entrepreneur is a factor of production. They organise land, labour and capital, bear the risk and earn profit. "Promoter" is a legal label for whoever controls a company, and that can be a foreign parent company that never started the Indian business.