Why Do Some Companies Have Zero Promoter Holding in India?

Promoter holding plays an essential role in shaping the sentiments of investors. Typically, promoters are seen as the backbone of a company, as they are often the founders or major stakeholders. However, some companies, like ITC, HDFC, Paytm, L&T, Ujjivan Bank, and ICICI Bank, have zero promoter holding. But why is this the case? Why do some companies operate without promoters? In this article, we’ll explore the entire concept of promoters and promoter holding in a company. Let’s get started!

What are promoters?

Promoters are individuals or entities who play a major role in creating and developing a company. They are the ones who bring together resources, arrange funding, and guide the company in its early stages. Promoters often hold a significant number of shares in the company and help make strategic decisions.

Is a Promoter the Owner?

While a promoter can own a large portion of the company, they are not always the sole owner. Ownership is shared among all shareholders. However, promoters usually have more influence on the company’s decisions compared to regular shareholders.

What Is the Legal Status of a Promoter?

Promoters have a special legal status. They are responsible for setting up the company and are involved in drafting important documents like the company’s memorandum and articles of association. Although they may not always own the company, they play a key role in its foundation and early growth.

What does it mean when promoter holding is zero?

There could be many companies where promoter holding is zero. It simply means no single person or entity has a significant ownership stake. These companies are often referred to as “professionally managed companies.” In these companies, decision-making is done by a Board of Directors and professional managers instead of a single promoter or group of promoters.

What happens when promoter holding is zero? 

When a company has zero promoter holding, it means the company is managed by professionals and not controlled by a single entity. This can have both positive and negative effects:

Advantages

• Balanced Decisions: Since no single promoter controls the company, decisions are often more balanced and consider the interests of all stakeholders.
• Professional Management: The company is managed by experienced professionals who focus on the company’s long-term growth and stability.

Disadvantages

• Ownership Dilution: To retain talented employees, the company might offer Employee Stock Option Plans (ESOPs), which can dilute ownership.
• Lack of Promoter Interest: If a company had promoters who reduced their stake or left, it might be seen as a lack of interest or confidence in the company. This could worry some investors.

Also Read – Inflation and CPI Explained – What’s the Effect on the Stock Market?

What is the difference between a promoter and a shareholder?

A promoter is a specific type of shareholder who is involved in setting up the company. However, not every shareholder is a promoter. Shareholders can simply be people who buy shares of the company without being involved in its creation or operations.

What is the 75% shareholding rule?

Promoters would have to release minimum 25% ownership to the public if it is a public company and listed in a stock exchange.

What if promoter holding is more than 75%?

If a promoter holds more than 75% of the company’s shares, they are required to sell the extra shares to bring their holding down to 75% or less. This rule applies to public companies listed on a stock exchange. It ensures that at least 25% of the company’s shares are available to the public.

Conclusion

A company with zero promoter holdings can still be a good investment if it shows strong fundamentals, has good management, and follows sound governance practices. Always do thorough research and consider multiple factors before making investment decisions. While promoter holding is important, it is just one of the many factors to look at when evaluating a company.