SEBI Clarifies Prior Approval Requirements For Change In Control Of Intermediaries

Posted On - 28 January, 2025 • By - King Stubb & Kasiva

On December 27, 2024, the Securities Exchange Board of India (“SEBI”) released a circular offering detailed guidance on situations requiring prior approval for changes in control of Investment Advisers (“IAs”), Research Analysts (“RAs”), and Know Your Client (“KYC”) Registration Agencies (“KRAs”).[1] This initiative seeks to enhance transparency and simplify regulatory procedures for these intermediaries.

Overview of the Circular

Changes in Control for Unlisted Body Corporate Intermediaries

For unlisted corporate intermediaries, SEBI has clarified that shareholding transfers among “immediate relatives” will not constitute a change in control. As per the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011,[2]“immediate relatives” include spouses, parents, siblings, and children of the individual or their spouse. This provision ensures that familial ownership transitions within such companies can occur without requiring regulatory approval, as the control effectively remains within the family.

Furthermore, the circular specifies that the transmission of shares—whether due to inheritance or other legal transfers—does not qualify as a change in control. This measure simplifies the process in cases where ownership changes arise from unforeseen events, such as the death of a shareholder.

Proprietary Firm Intermediaries and Ownership Changes

SEBI’s circular emphasizes that any transfer or inheritance of a proprietary firm’s business or capital is considered a change in control. Since this alters the legal ownership and control structure, the new owner must secure prior approval from SEBI. After obtaining approval, the incoming owner is required to apply for fresh registration as an intermediary. This ensures that SEBI evaluates the new owner’s eligibility and compliance with regulatory standards.

Regulations for Partnership Firm Intermediaries

In partnership firms with more than two partners, SEBI has clarified that inter-se transfers among existing partners are not regarded as a change in control. This provision facilitates internal restructuring and allows flexibility within such partnerships.

However, in partnerships with only two partners, introducing a new partner or the death of an existing partner constitutes a change in control. This would require prior approval from SEBI, along with fresh registration by the intermediary. This measure ensures that smaller partnerships maintain a stable and regulated structure.

In cases where a partnership agreement explicitly provides for admitting the deceased partner’s legal heirs as partners, the transmission of partnership rights to these heirs does not qualify as a change in control. This provision supports smooth transitions within families, provided such arrangements are stipulated in the partnership deed.

Fit and Proper Criteria for Incoming Entities or Shareholders

The circular also highlighted the importance of SEBI’s “fit and proper person” criteria. It is defined in Schedule II of the SEBI (Intermediaries) Regulations, 2008.[3]

Every entity or individual acquiring control of an intermediary must be eligible under this criterion. This would ensure that the new controllers possess the required integrity, financial stability, and operational competence towards regulatory obligations and protect investor interests.

Looking Forward

This circular has several significant implications for market intermediaries. Firstly, it provides much-needed clarity on what constitutes a change in control, reducing ambiguity and ensuring smoother compliance. Secondly, it introduces flexibility in specific scenarios, such as share transfers among immediate relatives or the transmission of shares in unlisted companies. Thirdly, the continued emphasis on the “fit and proper person” criteria highlights SEBI’s commitment to maintaining the integrity and efficiency of market intermediaries. Lastly, by defining situations requiring prior approval, SEBI aims to streamline the regulatory process, minimizing delays and administrative hurdles.


[1] https://www.sebi.gov.in/legal/circulars/dec-2024/prior-approval-for-change-in-control-transfer-of-shareholdings-among-immediate-relatives-and-transmission-of-shareholdings-and-their-effect-on-change-in-control_90213.html.

[2] https://www.sebi.gov.in/legal/regulations/may-2024/securities-and-exchange-board-of-india-substantial-acquisition-of-shares-and-takeovers-regulations-2011-last-amended-on-may-17-2024-_69218.html

[3] https://www.sebi.gov.in/legal/regulations/aug-2022/securities-and-exchange-board-of-india-intermediaries-regulations-2008-last-amended-on-august-1-2022-_61700.html