SEBI Proposal: ESOPs for Promoters of IPO-Bound Firms
Why in the news
SEBI proposed easing rules so founders of new-age firms, who must be labelled promoters before an IPO, do not lose employee stock benefits.
Key facts
- Current norms bar promoters and promoter group members from ESOPs; founders with about 10% or more must be tagged promoters.
- Proposal: they may hold, exercise or avail ESOPs and Stock Appreciation Rights (SARs) given at least a year before the IPO.
- Startup founders often accept ESOPs instead of high pay, so denying them could push exits.
| Area | Now | Proposal |
|---|---|---|
| ESOPs/SARs for promoters | Not allowed | Allowed if a year old at IPO |
| OFS lock-in | Shares held one year before DRHP filing | Converted shares from compulsorily convertible securities count too |
Views and logic
- Binoy Parikh (Katalyst Advisors): avoids last-minute restructuring.
- Harish Kumar (Luthra and Luthra): SARs are non-dilutive and leave the cap table untouched.
- SEBI reasons that eligibility should reflect how long the invested capital has existed.
Exam angle
- Terms: DRHP, ESOP, SAR, OFS.