Tuesday, October 21, 2025
spot_img

SEBI Amends ESOP Rules to Ease IPO Path for Startup Founders

spot_img
- Advertisement -

Securities and Exchange Board of India (SEBI) has amended its regulations to allow startup founders—classified as promoters—to retain Employee Stock Option Plans (ESOPs) and similar share-based benefits granted at least one year prior to filing for an Initial Public Offering (IPO).

SEBI amended the ESOP rules to address long-standing concerns about their treatment during the IPO process.

This change will to smoothen the path for startups preparing to go public.

Previously, SEBI regulations barred promoters from holding or being granted ESOPs.

Founders who held such benefits were required to liquidate them before submitting the Draft Red Herring Prospectus (DRHP), a rule that many in the startup community viewed as restrictive and counterproductive.

What the Amendment Allows

SEBI’s notification now allows any company to let employees identified as promoters or part of the promoter group in its draft offer document hold and exercise ESOPs, Stock Appreciation Rights (SARs), or other share-based benefits—if the company granted these at least one year before filing the draft IPO papers.

Startup founders can now retain the equity-linked incentives they received before initiating IPO preparations, as regulators no longer require them to surrender those benefits.

The rule change applies to all forms of share-based compensation issued under employee benefit schemes, including SARs and sweat equity.

SEBI Addressing Legal Ambiguity and Reverse Flipping

The amendment also resolves a legal ambiguity that had emerged between SEBI’s Share Based Employee Benefits and Sweat Equity Regulations, 2021, and the Companies (Share Capital and Debentures) Rules.

While the latter allowed startups up to 10 years old to issue ESOPs to promoters, SEBI’s rules required liquidation of such benefits before IPO filing.

This contradiction created confusion and compliance challenges for companies in transition.

The new rule is particularly beneficial for startups undergoing “reverse flipping”—a process where companies shift their legal domicile from overseas jurisdictions back to India before listing.

Founders in such companies often faced dilution of ownership and loss of performance-linked incentives due to regulatory constraints.

SEBI’s amendment now offers clarity and continuity in such cases.


Note: We are also on WhatsApp, LinkedIn, and YouTube to get the latest news updates. Subscribe to our Channels. WhatsApp– Click HereYouTube – Click Here, and LinkedIn– Click Here.

spot_img

Editorial

Why TCS Deferred FY25 Salary Hike: Better Hike Ahead?

TCS had initially announced its annual salary hike during...

Deloitte, PWC, EY, KPMG to Hire 1 Lakh People in India in FY25

According to estimates from top company officials and industry...

Higher EPS Pension Application Stuck: A Step-by-Step Guide to Fix

Nearly 97,640 Provident Fund (PF) members and pensioners under...

Employee Benefits at India’s Big 4 Firms Deloitte, PwC , EY, KPMG

The Big 4 firms; Deloitte, PwC (PricewaterhouseCoopers), EY (Ernst...

TCS Announces 4-8% Salary Hike for FY25, Lowest in Last 4 Years

Tata Consultancy Services (TCS), India's largest IT services provider,...

Must Read

Cognizant Fires Employee Union Leader Citing ‘Performance Issues’

Cognizant Fires an employee Elavarasan Raja holds the position...

American Express is hiring for various roles in India; Apply Now!

An American bank holding company and multinational financial services...

Lenskart is hiring for various roles, check details to apply

India's fastest-growing eyewear company and largest eyewear company online, Lenskart...

MSD (Merck & Co.) appoints Bhargavi Kakunuri as HR Lead, India

An American multinational pharmaceutical company, MSD (Merck & Co.) has...

Stryker India ropes in Rajiv Oza as Country HR Head

Rajiv Oza joins Stryker as Sr. Director- HR (Country...

Tata AIG Appoints Jitesh Bawa as Senior Vice President- Human Resources

Tata AIG General Insurance Company Limited appoints Jitesh Bawa...

Nestle rolls out medical, financial & wellness support to employees, dependents

Nestle rolls out medical, financial & wellness support to...

Vodafone to layoff 11,000 employees

Telecom giant Vodafone has decided to cut 11,000 jobs over the...

Related Articles

Sahiba Sharma
Sahiba Sharmahttps://sightsinplus.com/
Sahiba Sharma, Senior Editor - Content at SightsIn Plus