Are Companies Without Promoters Risky? How Do These Companies Work?

There are several companies in the Indian Stock Market which have little or no promoter holding. For instance, ITC Limited and HDFC Limited are companies that do not have any promoter holding. So, let’s discuss how do these companies work and is this company is worth investing in?

How Do Companies Without Promoters Work?

• The Companies without promoter holdings are called Professionally Managed Companies which are being run by Professionals.
• Such companies are benefited from the decentralization of the decision-making process.
• Also, since there is no promoter involved and the company is run by a board of directors, and other independent and non-executive directors, there is larger participation which yields more ideas.
• Moreover in Professionally Managed Companies, it is perceived to be minority shareholder-friendly.
• Lastly, in the companies which are being managed by promoters that too involve Family Promoters, then there are chances of family disputes which becomes a problem. Professionally Managed Companies are free from these problems.

What Are The Disadvantages of Professionally Managed Companies?

• Since there are a large number of members on the board, the decision-making process might not be quick.
• The perspective of professionals on decisions might be short-term.
• The Professionals might charge higher remuneration.
• Further, Professionals might take lucrative Employee Stock Option Plans (ESOPs) to retain themselves in the company.

What Should Investors Do?

Companies which does not have any Promoters which are generally called Professionally Managed Companies have their advantages and disadvantages, but it can’t be concluded that these companies are not worth investing in. There are no legal issues in the companies with no promoter holding and hence investors can look forward to investing in these companies if the other investing checklist of the company stock is intact. Hence, follow due diligence before investing in such companies and do a proper analysis.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.