SEBI proposes changes to ESOP rules for IPO-bound firms

The Securities and Exchange Board of India (SEBI) has proposed amendments to its regulations regarding employee stock options (ESOPs) for founders classified as promoters of IPO-bound companies. These changes aim to allow founders to retain and exercise ESOPs granted at least one year prior to an IPO, addressing a gap in current rules that prevent promoter-classified employees from holding such benefits. The proposed regulations also clarify the minimum holding period for shares in an Offer for Sale (OFS), ensuring consistency in the treatment of equity shares obtained through various means. This initiative is particularly significant for technology firms where founders often rely on ESOPs for financial incentives amid diluted ownership stakes. SEBI intends to introduce a cooling-off period to prevent potential misuse of these rules, balancing the need for clarity with regulatory safeguards. Stakeholders are invited to provide feedback on these proposals, which could enhance long-term commitment among shareholders in public offerings.