Imagine you’ve built a startup from the ground up. You’re in the trenches, working late nights, and instead of a big salary, you get stock options. That’s your motivation, your ownership. Now picture gearing up for an IPO, and suddenly you’re told you must let go of those stock options just as you're about to go public. That’s what used to happen. Promoters were barred from holding or exercising ESOPs at the time of filing the IPO papers, even those ESOPs earned before they became promoters.
Cue the plot twist. SEBI has now changed the rule. Founders who were granted ESOPs at least one year before filing the draft IPO papers can now keep and exercise them, even after being labelled as promoters. It might sound technical, but it’s huge. It means your sweat, your equity, doesn't vanish when you hit the public market.
Why make this change?
Well, it fixes something unfair. Founders used ESOPs as a way to stay invested in their own baby. Then, because of technicalities, they’d lose that just when it mattered most. SEBI listened and fixed it. This move also prevents last-minute ESOP issues aimed merely at public listing benefits.
What’s the impact? For founders, it’s a sigh of relief. You don’t have to dump your ESOPs as the IPO clock ticks. Your loyalty stays rewarded. For investors, this is a green flag—founders still have skin in the game. That alignment builds long-term trust.
There’s context too. Take the example of Paytm: the promoter, Vijay Shekhar Sharma, had to give up millions of ESOPs amid regulatory scrutiny because of unclear rules. No one wants a repeat of that.
So what’s the big idea? SEBI wanted fairness. Founders worked hard and got ESOPs in good faith. Why should a label of “promoter” strip that motivation away right when the company grows big?
Conclusion
SEBI’s new ESOP rule isn’t just technical jargon, it’s a signal. It says founders matter, that motivation deserves protection, and that investors can trust the people who build companies to stay committed. It’s a step toward a more mature, fair, and aligned IPO ecosystem in India.
Disclaimer
This blog is purely for educational purposes and should not be considered investment advice. Please do your own research or consult a registered financial advisor before making any investment decisions.