The Securities and Exchange Board of India (SEBI) has proposed a rule change that would allow startup founders to retain Employee Stock Option Plans (ESOPs) even after their company goes public.
This move aims to support founders of new-age technology companies, who often receive ESOPs in place of cash salaries during their company’s early years.
ESOPs align founders’ interests with those of other shareholders. However, as startups raise investments, founders’ ownership stakes are diluted.
Under current SEBI rules, founders are classified as promoters at the time of filing for an initial public offering (IPO).
Existing regulations prohibit issuing ESOPs to promoters, creating a challenge for founders who received stock options as employees before the IPO.
The market regulator noted that an employee who becomes a promoter due to their shareholding may be required to forfeit ESOP benefits, which could be deemed unfair.
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, SEBI has proposed clarifying 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, SEBI recently partnered with DigiLocker 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.
(Inputs from IANS)
