The family has agreed that the next generation will take over. Then the IPO team asks who will vote the shares, renew the bank facility, and speak to investors. You should be able to answer all three.
Promoter succession planning before an IPO brings those decisions together. It covers ownership, leadership, and what happens when the founder steps back or becomes unavailable.
At ASB Growth Ventures, we recommend having these conversations while you’re preparing the company for an IPO. Here are six places to start.
1. Agree on Ownership and Leadership Roles
Two siblings might inherit equal holdings while only one wants to run the company. Talk through how that would work. Who votes the shares? Who runs the business? How will dividends and major decisions be handled?
A family constitution or governance charter helps record decisions on family employment, leadership, and disagreements. Ask counsel to check how those terms fit with the articles, shareholder agreements, and succession documents.
Write down what the family agrees. “We’ll work it out later” becomes harder once outside shareholders are involved.
2. Put Succession Documents in Order
Once the family agrees on the handover, ask your legal and tax advisers to review the documents and proposed structure before moving shares.
Take these records to the review:
- Wills, nominations, and any trust documents, checked together for conflicts.
- Articles of association and shareholder agreements, with voting and transfer terms highlighted.
- Share registers and demat records, backed by the history of each holding.
A share transfer during someone’s lifetime and transmission after their death follow different processes under Section 56 of the Companies Act. Ask counsel which documents your situation calls for.
3. Check Promoter Shareholding Against the IPO Plan
Tell the IPO team before you transfer shares within the family. The change can affect who counts as a promoter, what goes into the offer document, and which shares qualify towards the minimum promoter contribution.
The usual minimum promoter contribution for an equity IPO is 20% of the share capital after the issue. Eligibility rules and exceptions affect the calculation, so confirm current figures with counsel and the lead manager.
Before transferring shares, ask the IPO team:
- Will the transfer change who is treated as a promoter or promoter-group member?
- Does the acquisition history affect whether the shares qualify towards the minimum promoter contribution?
- What lock-in conditions and disclosures apply?
SEBI’s ICDR regulations set different lock-in rules for mainboard and SME IPOs. Where a transfer of locked-in shares is permitted, the conditions still apply and the remaining lock-in continues. Have the team check your proposed transfer against the rules.
4. Prepare the Next Leadership Team
Let the successor handle a lender’s questions, a difficult customer, and a missed target at a board meeting. Give them responsibility for part of the business and agree how their progress will be measured. The founder can coach them through it.
Bring them into board and investor discussions. Be clear about what they can decide and when the founder will step in. If the family doesn’t have the right skills yet, consider an experienced professional manager.
Ask the IPO team which independent directors and board committees your listing route requires. Start the search early. New directors should have time to understand the business and question its plans.
5. Make Business Continuity Practical
Try a simple test: if the founder is unavailable for a month, which decisions would stop?
Look at bank access, pricing decisions, supplier contacts, and guarantees the founder handles personally.
Make sure the team can answer:
- Who can approve decisions, within what limits, and who is the backup?
- Where are the contracts, contacts, and records, and who has access?
- Who takes over in an emergency, and who must be told?
Check the loan terms, personal guarantees, and contracts for any consent required when ownership or leadership changes. Put a name against each follow-up.
6. Keep Disclosures, Family Dealings, and the Plan Up to Date
Check that the company records and offer document reflect the agreed ownership and leadership arrangements. Your lead manager and counsel should decide which details about ownership, control, and succession must be disclosed.
Review the plan when these change:
- A promoter’s role or shareholding.
- Family participation in management.
- Funding plans, board composition, or the expected listing date.
If the company rents an office from a family member or buys from a relative’s business, put those arrangements on the list too. Include loans, guarantees, terms, and balances. Your company secretary and counsel can check the approvals and disclosures for each transaction and listing route.
When Should You Start?
Aim to start 12–18 months before the intended IPO. Use that as a planning guide; your IPO team should confirm the actual schedule. Allow time for the successor to learn the role and for advisers to sort out ownership records.
Already close to filing? Tell the IPO team about unresolved ownership or leadership questions now, so they can check whether the listing timetable still works.
How ASB Growth Ventures Supports Pre-IPO Succession Planning
At ASB Growth Ventures, we help SMEs and growing businesses work out what to fix before an IPO.
Our IPO readiness support includes:
- An IPO readiness review with clear actions and owners.
- Governance and promoter advisory.
- A review of the capital structure and financial records.
- Coordination with lawyers, auditors, valuers, and merchant bankers.
Your legal and tax advisers should review the succession documents and tax treatment.
FAQ
Q. When should a promoter start succession planning before an IPO?
Start when you begin preparing the company for an IPO. Allow longer if shareholdings are disputed or the successor is still learning the business. Agree the timetable with your IPO team.
Q. Can promoters transfer shares to family before an IPO?
Yes, if the transfer complies with the law, company articles, shareholder agreements, and lender restrictions. Check promoter classification, share eligibility, and disclosures with counsel and the lead manager first. After allotment, any permitted transfer of locked-in shares carries conditions and the remaining lock-in.
Q. Does a will replace nomination for demat shares?
Keep both up to date. A will doesn’t change the nominee recorded with your depository participant. It can govern inheritance rights; nomination helps with transmission. The Supreme Court has confirmed that nomination doesn’t override succession law.
Q. Do SME IPOs need succession planning too?
Yes. An SME also has to keep running if the founder steps back or becomes unavailable. Your company secretary can confirm the governance duties for your route, including SME exemptions and related-party requirements.
Q. What if the founder becomes unavailable during IPO preparation?
Follow the agreed emergency plan. The authorised people should know who approves payments, deals with lenders, and answers the IPO team. Ask counsel and the lead manager to check any effect on control, disclosures, or filing dates.