The conventional assumption of the Indian corporate landscape held by many legal and investment professionals across the world characterizes it as one dominated by ‘promoters’—founders and their families who exercise entrenched, concentrated control over their enterprises. This ‘insider model’ of corporate governance, where a small group of majority shareholders dictates board composition and day-to-day management, often presents a perceived governance risk profile that differs significantly from the dispersed shareholding patterns typical of the United Kingdom and the United States. However, a recent paper offering evidence regarding the governance of Indian unicorns suggests that this traditional picture is increasingly complex. For the sophisticated institutional investor, the underlying reality of these high-valuation startups may actually provide a higher degree of reassurance and institutional alignment than nominal equity figures would suggest.
On a purely prima facie basis, Indian unicorn promoters appear to retain substantial equity, with an average equity shareholding of 73.09% observed in studied samples. Thus, from a purely equity standpoint, these Indian unicorns seem to exhibit concentrated shareholding similar to traditional Indian firms. However, the vast majority of private equity and venture capital infusions into Indian unicorns are structured through convertible instruments, such as compulsorily convertible preference shares or debentures, rather than through equity shares. These instruments are designed to provide downside protection through seniority in liquidation while maintaining significant upside potential via the option to convert into common equity.
When these holdings are analysed on a fully diluted basis, the perceived concentration of shareholding and promoter dominance is revealed as a mirage. In the case of NTex Transportation Services Limited, while promoters held a majority of the existing equity, the conversion of investor-held preference shares would dilute the promoter stake far below the critical 51% threshold. Similarly, valuation reports for Think and Learn Private Limited indicated that a full conversion would reduce the founders’ and their families’ shareholding to approximately 28%.
This structural dispersion is further confirmed at the Initial Public Offering stage, as Securities and Exchange Board of India (‘SEBI’) regulations mandate the full conversion of all outstanding convertible securities prior to listing. Disclosures from formerly private and now public listed unicorns such as One97 Communication, Zomato, PB Fintech, and Delhivery have consistently shown that founders often hold only single-digit or low double-digit percentages of the total share capital upon listing.
For the global investor, this signifies that economic and governance influence is often much more robust than common equity data implies. The concern regarding promoter entrenchment is further mitigated by the unique transparency required under Indian law via the VB Rangaraj doctrine. In the landmark case of VB Rangaraj v VB Gopalakrishnan, the Indian Supreme Court held that rights and obligations negotiated within a private shareholders’ agreement (‘SHA’) are unenforceable unless they are formally incorporated into the company’s Articles of Association (‘AoA’). This requirement, subsequently expanded in IL&FS Trust Co Ltd v Birla Perucchini Ltd, ensures that governance rights, including board nomination, quorum, and veto rights, are matters of public record accessible via the Ministry of Corporate Affairs. This stands in stark contrast to English law, where SHAs remain private, confidential documents that offer subsequent investors little to no visibility into the competing rights negotiated by their predecessors. The consequence of the Rangaraj doctrine is that the SHA is not the operative document, the AoA is. Investors should ensure that negotiated rights are incorporated into the AoA promptly upon deal completion.
The empirical analysis of the AoA of these unicorns reveals a substantial shift in the balance of power. In approximately 75% of the companies reviewed, the number of directors appointed by institutional investors exceeded the number appointed by the founders. Furthermore, the study indicates that promoter rights to appoint directors are increasingly becoming contingent upon their continued employment as key managerial personnel, rather than being an absolute right derived from shareholding. This suggests that founders are increasingly viewed by the market as critical human capital rather than de jure owners. Furthermore, the prevalence of protective covenants is high, with 86.1% of reviewed AoAs granting investors specific quorum rights and 91.66% containing veto or affirmative voting rights over salient corporate actions. Another key element of this study suggests the appointment of independent directors and the rotation of auditors, which are mandated in India only for public listed companies. The paper suggests that as unlisted Indian unicorns grow in number of shareholders and therefore decision making complexity, their governance tends to resemble those of public listed companies.
As the Indian private equity and venture capital markets develop further, Indian unicorns represent a fundamental departure from the classical insider model. As these entities scale, they are increasingly adopting governance standards—such as independent director appointments and rigorous quarterly reporting—that mirror those of publicly listed companies. This ongoing professionalization indicates that the governance gap between Indian unicorns and their Western counterparts is narrowing. For investors, understanding that the true balance of power is often hidden behind the veil of conversion, yet publicly verifiable through the AoA, is essential for navigating this dynamic and high-growth market.
Ryan J Joseph is a student at OP Jindal Global University.
Arjya B Majumdar is a Professor at OP Jindal Global University.
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