India’s securities market regulator, SEBI has proposed a rule change that will allow founders to retain their Employee Stock Option Plans (ESOPs) even after an IPO.
Existing Rules
- Existing SEBI regulations classify founders as promoters at the time of an IPO
- Promoters & promoter group members cannot receive ESOPs under current rules
- Founders who had ESOPs as employees before IPO may lose their stock benefits
SEBI’s Proposal
- Founders can retain vested & unvested ESOPs even if they are later classified as promoters in the Draft Red Herring Prospectus (DRHP)
- The Draft Red Herring Prospectus is an initial document filed with regulatory bodies by a company intending to launch an Initial Public Offering (IPO).
- New ESOP issuances to promoters still restricted
- Aligns with startup rules under Companies (Share Capital and Debentures) Rules
Why This Matters?
- Ensures fairness for startup founders who received ESOPs before the IPO
- Prevents forced forfeiture of stock options after promoter classification
- Encourages equity-based compensation in the startup ecosystem
(Source: DD News)
