Sebi may allow founders to keep Esops post-IPO

The Securities and Exchange Board of India (Sebi) is considering a change to its rules regarding startup founders and employee stock options (ESOPs). Currently, founders receive ESOPs, which are equity-linked benefits, instead of full cash pay. This helps align their interests with other shareholders. However, when companies raise funds, founders' shares often get diluted. Under existing rules, when a company goes public, founders are categorized as promoters. This classification prevents them from holding ESOPs. Sebi has noted that it may not be fair for founders, who become promoters, to lose their ESOP benefits. There is currently ambiguity about whether these employees can still exercise their ESOPs after being reclassified. To address this, Sebi is proposing to clarify that founders can keep their ESOPs, even if they become promoters. This change would be added to the rules governing the Draft Red Herring Prospectus (DRHP). Despite this proposed change, Sebi will maintain a ban on issuing new ESOPs to promoters classified as founders.