Sebi Moots Change In ESOP Norms

Mumbai: Securities and Exchange Board of India (Sebi) has proposed a change in rules that will allow startup founders to continue holding Employee Stock Option Plans (ESOPs) even after their company goes public. This move aims to provide relief to founders of new-age technology companies who often receive ESOPs instead of cash-based salaries in the early years of their business.

ESOPs help align the interests of founders with other shareholders. However, when startups raise investments, the founders’ shareholding gets diluted.

Under current Sebi rules, founders are classified as promoters at the time of filing for an initial public offering (IPO).

The existing regulations also do not permit ESOPs to be issued to promoters, which creates a problem for founders who received stock options as employees before the IPO.