SEBI May Tweak Norms For Family Trust Structures

by Vinaya HS on July 29, 2017

in Finance

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SEBI (The Securities and Exchange Board of India)is considering tweaking the norms in the case of family trust structures. This is being done to avoid any misuse of the family trust structures by the promoters. SEBI is more vigilant when it comes to corporate trustees who wish to transfer the listed companies shares.

The business news confirms that there has been a recent upsurge in the number of promoters who wish to transfer their business assets that also includes the shares of listed entities, to such trusts. But now, the promotors will have to get a nod of SEBI before they can get the transfer of shares of the listed companies to a trust. SEBI has been quite watchful in giving the permission for the same. The apprehension that the trust structure would be in the benefit of a non-family member or the transfer control will happen outside a family is keeping the SEBI selective. SEBI is all the more doubtful in the cases when the trustee is an external corporate entity and not the beneficiary or a family member. But there is no doubt in the case of an open offer when shares are transferred in a trust. As per the takeover rules, the thing that creates a trigger for an open offer is if an entity acquires at least 25% in a listed company. Then the entity has to buy another 26% stake in the company from the public shareholders.To state clearly, there is no exemption given by the Sebi on trigger of open offer if the trustee is a corporate trustee.

Many market experts hold the opinion that Sebi should think upon the simplification of this process of forming a trust so that the transfers can be done without taking a prior approval. There is also a call for more clear and specific rules and norms that makes sure that the control of shares in a trust is in no way passed to an external party. One of the important things to know is, that the contribution of assets to a trust is not taxable for either the contributor or the trust.

It is seen that there are several promoters who have started forming family trusts recently to restrict their personal assets from business liabilities. Moreover, they speculate the advent of estate duty or inheritance tax which is already the norm in few developed countries like US and UK. The legal news in India has seen the cases where the rich people have started depending hugely on family trusts as a tool for succession planning because this is the simplest, least costly and easiest way of holding the assets rather than owning them in their own individual names or through other entities.Hence, the trust is adjudged as the effective succession planning tool because it is a lasting entity that separates proprietorship and administration of a business and also helps in the caseof any casualty like death or breakdown.

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