Have SEBI Eased IPO Rules for Startup Founders to Retain ESOPs?
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Synopsis
In a groundbreaking move, SEBI has reformed IPO regulations, permitting startup founders to retain their ESOPs prior to going public. This decision is expected to simplify the IPO process and provide much-needed flexibility for founders, especially those transitioning companies back to India.
Key Takeaways
- SEBI now allows startup founders to retain ESOPs before IPO filings.
- This change aims to ease the IPO process for startup leaders.
- Founders can hold benefits granted at least a year prior to filing.
- The move addresses challenges faced during the listing process.
- It promotes a smoother transition for companies relocating to India.
Mumbai, Sep 9 (NationPress) In a significant advantage for startup founders aiming to go public, the Securities and Exchange Board of India (SEBI) revealed on Tuesday that it has revised its regulations to permit promoters to maintain their employee stock options (ESOPs) that were granted at least a year prior to submitting IPO documentation.
The official announcement states that employees identified as promoters or part of the promoter group in the IPO draft can now hold or exercise ESOPs, Stock Appreciation Rights (SAR), or any equivalent benefits, as long as these were allocated at least one year before the IPO filing.
Previously, SEBI's regulations forbade promoters from holding ESOPs or comparable share-based incentives.
Those founders who possessed such benefits were required to liquidate them before filing the draft papers for an IPO, complicating the process for startup leaders designated as promoters.
The regulatory body indicated that this update aims to alleviate the challenges faced by founders during the listing procedure, particularly for companies relocating their base from overseas to India through a method known as reverse flipping.
This initiative is anticipated to streamline the IPO process for startups and offer flexibility to founders who were awarded ESOPs before embarking on public listing plans.
Furthermore, earlier this week, the market regulator adjusted settlement timelines for the equity and derivatives sectors due to settlement holidays announced on September 5 and 8, 2025, by clearing corporations.
As per SEBI, the settlement for the cash and Securities Lending and Borrowing Mechanism (SLBM) segment for trading days on September 4 (Thursday) and September 5 (Friday) will occur on September 9 (Tuesday).
“The settlement for transactions on September 8 (Monday) and September 9 (Tuesday) will be finalized on September 10 (Wednesday),” the market regulator stated on Monday.
Point of View
This regulatory change by SEBI is a strategic move that aligns with the evolving landscape of the startup ecosystem in India. By allowing founders to retain their ESOPs, SEBI not only showcases its commitment to nurturing innovation but also addresses significant challenges faced by entrepreneurs. This decision is a reflection of the regulatory body’s understanding of the unique hurdles that startup leaders encounter, particularly in a dynamic market.
NationPress
09/09/2025
Frequently Asked Questions
What did SEBI change regarding IPO rules?
SEBI amended its rules to allow startup founders to retain employee stock options (ESOPs) granted at least one year before filing IPO papers.
Why was this change necessary for startup founders?
Previously, startup founders had to liquidate their ESOPs before filing for an IPO, complicating the process. This change aims to simplify the IPO journey for them.
What are ESOPs?
Employee Stock Options (ESOPs) are a form of equity compensation that gives employees the right to purchase shares in the company at a predetermined price.
How does this affect the IPO process for startups?
This change allows founders to maintain their equity interests, making it easier for them to navigate the IPO process and encouraging more startups to consider going public.
What is reverse flipping?
Reverse flipping refers to the process of relocating a company’s base from a foreign country back to India, often involving complex regulatory challenges.
