Sebi amends ESOP rules for IPO-bound startups

New Delhi: In a big relief to startup founders looking to go public, Sebi has amended rules allowing them to retain Employee Stock options (ESOPs) granted at least one year before filing preliminary IPO (initial public offering) papers.

“An employee who is identified as a ‘promoter’ or part of the ‘promoter group’ in the draft offer document filed by a company with the Board in relation to an IPO, and who was granted options, SAR (Stock Appreciation Rights) or any other benefit under any scheme at least one year prior to filing of the draft offer document, shall be eligible to continue to hold and/or exercise such options, SAR or any other benefit,” Sebi said in a notification made public on Tuesday.

The new rule would facilitate founders who received ESOPs at least one year before the filing of draft papers to continue holding or exercising such benefits even after being specified as the promoter and the company becoming a listed entity.

Under the existing regulations, promoters are ineligible to hold or be granted share-based benefits, including ESOPs. If they hold such share-based benefits at the time of filing of the DRHP (draft red herring prospectus), they have been required to liquidate such benefits prior to the IPO.