SEBI proposes ESOP benefits for startup founders even after IPO

Mumbai:  The 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.

The market regulator highlighted that an employee who later becomes a promoter due to their shareholding may have to give up their ESOP benefits, which might not be fair.

It noted that the rules are unclear on whether such founders can exercise their vested and unvested ESOPs after being classified as promoters.

To address this, the SEBI has proposed adding a clarification stating that stock benefits granted to founders will continue even if they are later classified as promoters in the Draft Red Herring Prospectus (DRHP). However, the rule preventing new ESOP issuances to promoters will still apply.

This proposal is expected to benefit startup founders who receive equity-based compensation and ensure they do not lose their ESOP benefits after their company goes public.

Meanwhile, the SEBI has partnered with DigiLocker recently to help investors track their securities holdings and reduce unclaimed financial assets.

This initiative aims to enhance investor protection and make access to financial holdings easier and more secure.

With this integration, investors will be able to store and retrieve details of their demat accounts and mutual fund holdings through DigiLocker.

The platform already provides access to bank account statements, insurance policies, and National Pension System (NPS) details.

Now, it will also serve as a centralised place for managing securities information.

–IANS