The founder of Paytm has property rights after the listing

Vijay Shekhar Sharma, CEO of Paytm, will have “intellectual property rights” to appoint a member of its board of directors as long as he owns 2.5% of the shares in the company he founded, a regular regulatory filing ahead of the next digital payments platform release. The offer (IPO) was shown.

This gives the founder sufficient cushion as he currently owns more than 9% of Paytm. These rights were incorporated into the new Participation Agreement (SHA) signed between Sharma and Paytm last month. Under the new SHA, Sharma agred not to classify itself as the company’s promoter group.
Although the new SHA has already entered into force, the proposal to grant the founder of Paytm property rights to the fintech company after its listing has to be ratified by the shareholders. Top industry sources told ET the proposal would be put to vote ahead of time. Meeting of the General Board after listing, adding that as all existing investors, including Jack Ma’s Alibaba and its subsidiaries (including Ant Financial) which own more than 30% of Paytm, approve the proposal, it is unlikely to be challenged will. your consent.
“It is an established industry standard to grant founding members rights associated with the nomination of the board, subject to public approval by shareholders,” said one person with direct knowledge of the matter. “In the current case, the founder’s share is significantly higher and therefore the founder’s interests in the company must also be safeguarded.”

The new SHA stipulates two conditions for the definition of Sharma’s list of rights: The first is a minimum participation of 2, 5%, while the second is Sharma’s continued commitment to Paytm in an executive role. to appoint a person of their choice to the new board of directors; However, if you don’t meet any of the conditions, you can only nominate yourself for the Paytm board.
Sharma will completely lose the right of representation at the meeting if both the conditions of the prescribed minimum ownership of shares and participation in a managerial position at Paytm are no longer met.

In addition to the founder, Alibaba also gets a seat on the board. SoftBank Vision Fund and Elevation Capital (formerly SAIF), which hold shares in Paytm, can each appoint a director.
Separately, Sharma and a select group of other Paytm investors also have “initial offer rights” should any of the existing shareholders attempt to dispose of their stake in the company.

“The Founder, Investors and other Series G investors have also agreed on certain proposed share transfers, including the provision of Inter-Se initial offer rights, buy and sell rights on certain transfers, and drag-along rights,” it said in the document said Paytm going public.

Several Indian consumer technology startups, such as Paytm, CarTrade, Nykaa, PolicyBazaar, MobiKwik, and Delhivery, are in various stages of completing their public listing on Indian stock exchanges. They offer individual promoters more flexibility to exercise operational control over the companies they have founded even after they have gone public.

“Founders who have special precautions to protect their boardroom interests can help maintain effective control even if institutional sponsors are more involved in the company’s job list,” said a venture capital manager, who works with a startup that is planning a local listing. “There is an opinion in the industry that the market regulator should allow the issuance of higher rights or two-tier shares to help founders protect their interests.”

The issuance of shares with superior voting rights (SR) is considered to be one of the best safeguards in the global startup industry.SR shares give promoters higher voting rights than ordinary investors. The Securities and Exchange Board of India (SEBI) published guidelines for SR shares in 2019, but the framework is still considered a “work in progress” locally.

In contrast, the issuance of SR stocks and other categories of dual-class stocks is common among the founders of large Nasdaq-listed technology companies such as Facebook, Google, Uber and Snap.

Facebook founder Mark Zuckerberg, for example, has the majority of the voting rights on the social media platform due to a two-tier structure that weighs certain shares against others. Similar two-tier structures to protect founder’s rights have also been introduced by Rupert Murdochs News Corp, ride-sharing company Uber, and Google.

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