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Company Law

Who is a Promoter of a Company: Companies Act Definition, SEBI Rules and Liabilities

By CA Madhusmita Padal • Updated September 2026 • 8 min read

The term “promoter” has a specific legal meaning in Indian company law — one that goes well beyond the casual use of the word. Under Section 2(69) of the Companies Act 2013, the definition captures control as much as ownership. For listed companies, SEBI’s ICDR and LODR frameworks impose additional obligations including lock-in periods, minimum promoter contribution, and ongoing shareholding pattern disclosure. For founders and investors, understanding who is legally a promoter — and what liability comes with that label — is essential at every stage of company life, from incorporation to IPO.

Key Takeaways

  • Section 2(69) defines a promoter by control, not just share ownership — someone whose instructions the board follows is a promoter.
  • A promoter can be held civilly and criminally liable for misstatements in a prospectus under Sections 34–35.
  • IPO lock-in: 3 years for minimum promoter contribution (20%), 1 year for excess promoter shareholding.
  • Promoter group includes immediate relatives and entities in which the promoter holds 10%+.
  • Professionals (lawyers, CAs) acting in professional capacity are not treated as promoters.

Section 2(69) defines a promoter as a person who:

  • (a) Named in the prospectus as a promoter, or identified by the company in its annual return as a promoter
  • (b) Controls the affairs of the company, directly or indirectly — whether as a shareholder, director, or otherwise
  • (c) Accustomed to act on whose advice — the board of directors is accustomed to act in accordance with the person’s advice, directions, or instructions

The definition expressly states that a person acting in a professional capacity — such as a lawyer, chartered accountant, or management consultant giving professional advice — is not considered a promoter by virtue of that advice alone.

What is the difference between a promoter and a director?

Parameter Promoter Director
Role timing Before and at incorporation After incorporation
Legal basis Section 2(69) definition Section 2(34) + board appointment
Appointment mechanism Self-designated; identified by control/subscription Appointed by shareholders at general meeting
Fiduciary duty to The company and future shareholders The company and its shareholders
Prospectus liability Yes — Section 35 civil + Section 34 criminal Yes (directors at time of issue)
Can same person be both? Yes — founder-directors are typically both promoters and directors simultaneously

What is a promoter group under SEBI regulations?

Category Who is included
Immediate relatives Spouse, parents, siblings, children of the individual promoter
Controlled companies Companies in which the promoter holds 10%+ of the equity share capital
Controlling companies Companies holding 10%+ in the issuer company
HUF HUF where the promoter is the karta (head)
Trusts and funds Trusts/funds of which the promoter is a trustee or beneficiary

What is the IPO promoter lock-in period under SEBI ICDR Regulations?

  • Minimum promoter contribution (20% of post-issue capital): Locked in for 3 years from the date of allotment in the IPO
  • Excess promoter shareholding (above the minimum 20%): Locked in for 1 year from the date of allotment
  • During the lock-in period, shares cannot be sold, transferred, encumbered, or pledged
  • Exception: Pledging is allowed to public financial institutions or scheduled banks as security for a loan, with conditions
Post-lock-in disclosure: Any sale by a promoter of more than 2% of the company’s total shares in any quarter after the lock-in ends must be disclosed to the stock exchange at least one trading day before the sale (SEBI SAST Regulations).

What are the civil and criminal liabilities of a promoter?

Section Liability type Consequence
Section 35 Civil — misstatement in prospectus Liable to pay compensation to every subscriber who suffered loss
Section 34 Criminal — fraudulent misstatement in prospectus Imprisonment up to 10 years + fine up to ₹25 crore (Section 447)
Pre-incorporation contracts Contracts signed by promoters before incorporation Promoter personally liable unless company adopts the contract post-incorporation
Undisclosed profits Promoter makes secret profit at company’s expense Company can rescind the contract and recover the secret profit

What are the fiduciary duties of a promoter to the company?

  • Duty of disclosure: Promoters must disclose all material interests, profits, and conflicts to the company’s independent board or shareholders
  • No secret profits: Any profit made in dealings with the company must be disclosed and approved; undisclosed profits must be returned
  • Duty of good faith: Promoters must act bona fide in the best interests of the company, not purely in self-interest
  • Pre-incorporation contracts: Promoters must ensure any pre-incorporation contracts are fair and disclosed so the board can independently evaluate and adopt them

How can Tradeviser help founders understand their promoter obligations?

Tradeviser helps founders and promoters navigate their legal position from incorporation through fundraising and beyond — identifying who is a promoter, advising on promoter group disclosure, and ensuring compliance with SEBI lock-in rules if a public listing is planned.

Understand Your Promoter Obligations

Tradeviser advises founders on promoter definition, fiduciary duties, prospectus liability, and SEBI lock-in compliance — from company formation to public listing.

Talk to a Company Law Expert

Frequently Asked Questions

Who is a promoter under the Companies Act 2013?

A person named as promoter in the prospectus, one who controls the company’s affairs, or someone whose advice the board customarily follows — as defined in Section 2(69).

What is the difference between a promoter and a director?

A promoter conceives the company and arranges its formation. A director manages it after incorporation. A founder-director is both a promoter and a director simultaneously.

What is the IPO promoter lock-in period?

Minimum promoter contribution (20%) is locked in for 3 years post-IPO. Excess promoter holding is locked in for 1 year. Under SEBI (ICDR) Regulations 2018.

What are the civil liabilities of a promoter?

Under Section 35, promoters are civilly liable for misstatements in a prospectus — subscribers who suffered loss can claim compensation from promoters personally.

What is a promoter group under SEBI regulations?

Includes promoters, their immediate relatives, companies in which they hold 10%+, and entities holding 10%+ in the issuer. Disclosed in quarterly shareholding patterns.