SEBI Suggests Continued ESOP Benefits for Startup Founders Post-IPO

Key Takeaways

SEBI proposes rule change for startup founders.
Founders can retain ESOPs post-IPO.
Current rules classify founders as promoters.
ESOPs align interests of founders and shareholders.
SEBI partners with DigiLocker for investor protection.

Mumbai, March 21 (NationPress) The Securities and Exchange Board of India (SEBI) has put forth a proposal to modify existing regulations, allowing startup founders to retain their Employee Stock Option Plans (ESOPs) even after their firms go public.

This initiative is designed to support founders of modern technology enterprises, who frequently receive ESOPs as a substitute for cash salaries during the initial phases of their ventures.

ESOPs serve to align the interests of founders with those of other shareholders. However, as startups seek investments, the ownership stake of the founders tends to become diluted.

At present, SEBI categorizes founders as promoters when they file for an initial public offering (IPO).

The current regulations prohibit the issuance of ESOPs to promoters, posing a challenge for founders who were granted stock options as employees prior to the IPO.

The regulatory body pointed out that an employee transitioning into a promoter due to their shareholding may face the loss of their ESOP advantages, which raises concerns of fairness.

It further emphasized that there is a lack of clarity regarding the ability of these founders to exercise their vested and unvested ESOPs post their classification as promoters.

To rectify this, SEBI has suggested incorporating a clarification in the Draft Red Herring Prospectus (DRHP), ensuring that stock benefits awarded to founders persist even if they assume the role of promoters. Nonetheless, the restriction on new ESOP issuances to promoters will remain in place.

This proposal is anticipated to assist startup founders who receive equity-based remuneration and safeguard their ESOP benefits after their company transitions to a public entity.

Additionally, SEBI has recently collaborated with DigiLocker to facilitate investors in monitoring their securities holdings and minimize unclaimed financial assets.

This effort aims to bolster investor protection while simplifying and securing access to financial holdings.

Thanks to this integration, investors can now store and retrieve information regarding their demat accounts and mutual fund holdings via DigiLocker.

The platform also offers access to bank statements, insurance policies, and National Pension System (NPS) details.

Now, it will function as a centralized hub for managing securities information.