The Securities and Exchange Board of India (SEBI) has proposed changes to its rules that would allow startup founders to retain their Employee Stock Option Plans (ESOPs) even after their companies go public. This move seeks to support startup founders who often rely on ESOPs as a form of compensation in the early stages of their businesses.

BulletsIn

• SEBI’s new proposal would allow startup founders to keep their ESOPs after an Initial Public Offering (IPO).
• Founders often receive ESOPs instead of cash salaries, aligning their interests with shareholders.
• As startups raise funds, founders’ ownership stakes are diluted, and under current rules, they are classified as promoters.
• SEBI regulations currently prohibit the issuance of new ESOPs to promoters, creating a challenge for founders who received them before the IPO.
• The proposal clarifies that ESOPs granted to founders will continue even if they are classified as promoters in the Draft Red Herring Prospectus (DRHP).
• However, the rule preventing new ESOP issuances to promoters will still apply.
• This change aims to ensure that founders do not lose their ESOP benefits once their companies go public.
• The move supports founders who have equity-based compensation and ensures fairness.
• SEBI also launched a partnership with DigiLocker to help investors track their securities holdings more securely.
• The integration with DigiLocker will allow investors to store and retrieve details of their demat accounts, mutual fund holdings, and more.