The Securities and Exchange Board of India (SEBI) has eased its rules on employee stock options (ESOPs), which comes as a major relief for startups planning on going public.
With the new set of regulations, startups can now retain employee stock options (ESOPs), stock appreciation rights (SARs), and other share-based benefits granted at least one year before filing the initial public offering (IPO) papers.
Prior to this change, SEBI did not allow startup promoters, including founders, to hold ESOPs if the startup was going public. As such, promoters and founders had to liquidate ESOPs and similar entitlements before submitting the draft red herring prospectus (DRHP).
The previous restriction was discouraging for many founders who wanted to go public but did not want to lose out on a potential source of benefit just before filing the IPO papers.
As per SEBI, the rule will particularly benefit companies that have shifted their country of incorporation back to India (referred to as “reverse flipping”) and are preparing for listing.
