Stake disclosure rules: why 5% and 25% matter in listed startups

SAST stands for Substantial Acquisition of Shares and Takeovers. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 apply to companies listed on Indian stock exchanges. They have two jobs: make big holders disclose their positions, and give ordinary shareholders a fair exit when control changes hands.

For startups that have listed, the rules matter because early venture investors often hold large blocks that they sell down after the lock-in ends. Each sale can trigger a disclosure. A recent live case: SoftBank's vehicle SVF II Meerkat sold shares in Meesho to institutional buyers, bringing its holding down from 6.84% to about 5.19%.

The rules are also part of a wider system. Insider trading rules govern what people with unpublished information may do, listing rules govern what companies must announce, and the takeover rules govern how control may move. Together they aim to keep ownership changes visible and fair.

Five per cent is the first threshold. Under regulation 29, as of November 2026, anyone who acquires shares that take the total to 5% or more of a listed company's voting rights must disclose that holding to the company and to the stock exchanges. The disclosure goes in within two working days of the acquisition or the notice of allotment.

The point is transparency. Other shareholders can see who has built a position, and the market can price in the possibility of a larger move.

The disclosure is made on prescribed forms. The holder sends it to every stock exchange where the company is listed, and the company itself has duties to pass it on. The filings become public on the exchanges' websites soon afterwards.

The rule counts voting rights, not only shares, so instruments that carry votes, such as certain convertible securities once converted, can also count toward the total.

Once a holder is at 5% or more, regulation 29 requires a fresh disclosure whenever its holding changes by 2% or more of the company's voting capital, up or down, through buying or selling. The same two working days apply.

The result is a trail of filings on the exchange websites that anyone can read, showing how a large holder built up and later reduced a position.

• Crossing 5% by buying: disclose within two working days.
• Each later move of 2% or more, in either direction: disclose again.
• Selling that takes a holding down: also reported, so the trail shows the exit.
• Holders acting together are treated as one for these counts.

An open offer is a public offer to buy shares from the remaining shareholders at a stated price. Under regulation 3, as of November 2026, an acquirer who takes a holding to 25% or more of voting rights, or who gains control, must make an open offer for at least 26% of the company's capital.

The offer price cannot be lower than a floor set by the rules, which looks at recent trading prices and the price the acquirer paid. A merchant banker manages the process, and SEBI reviews the offer document.

The reason is fairness. When someone gains control, the old public shareholders should get the chance to leave at a fair price rather than stay under a new owner.

The open offer price follows several tests. Roughly, the acquirer must pay at least the highest of the negotiated price, the highest price it paid recently and the average of recent market prices. The exact formula is in the regulations and it is revised from time to time, so a headline price should be compared with these floors in the offer document.

Some deals are exempt from an open offer, such as certain transfers within a family or group, or acquisitions through a court-approved scheme. The exemptions have conditions, which is why the details need a lawyer.

A holder between 25% and 75% may still increase its stake without an open offer, but only by up to 5% of voting rights in a financial year. Anything beyond that triggers an open offer. This is called creeping acquisition.

Promoters often use it to raise their shareholding step by step. The ceiling for any holder is the maximum non-public shareholding allowed, which in most cases means public holding must stay at 25% or more.

Beyond that, a company with more than 75% held by promoters must reduce it to meet public shareholding norms, and an acquirer who ends up above that level has to bring it back down within a set time.

Most funds hold well under 25%, so open offers rarely arise from their trades. Disclosure is the rule that applies to them. A fund that holds 7% and sells 2% must report, even if the sale is a block deal on the exchange.

Funds with a stake in the 5% to 10% range often sell in tranches. Each tranche is a separate trade with its own paperwork. Sales on the exchanges through block or bulk deals are also reported separately by the exchanges themselves, so one sale can create two public records.

The sale that takes a holding below 5% is generally reported, since it is a change that crosses the threshold. After that, the 5% rules in regulation 29 no longer apply as long as the holder stays below it. Other duties can continue, such as insider trading rules under the SEBI (Prohibition of Insider Trading) Regulations 2015 if the holder is a director or a designated person.

Rules are amended often, so the exact reporting duties for a given trade should be confirmed in the current regulation or with a securities lawyer.

Check who sold, how many shares, the price and the percentage before and after. A move from 6.84% to 5.19% is a change of about 1.65 percentage points, so the 2% change rule alone may not apply to that one sale, but the holder may have crossed the threshold with earlier sales.

Also notice who bought. Buying by institutions often signals demand, while a large sale by an early investor may only be a planned exit. Neither fact says anything about the business. This is general information, not investment or legal advice.