Mumbai, NFAPost: In a significant boost for startup founders eyeing stock market listings, the Securities and Exchange Board of India (SEBI) has eased rules around Employee Stock Options (ESOPs). Founders classified as promoters will now be allowed to retain ESOPs granted at least one year before filing their Draft Red Herring Prospectus (DRHP).
The move addresses a long-standing pain point in India’s IPO ecosystem. Earlier regulations forced promoters to liquidate all share-based benefits, including ESOPs, before going public—creating hurdles for startups where founders often hold such benefits as part of their compensation. The relaxation aims to encourage more startup listings without penalising founders for holding performance-linked equity.
The decision was part of several approvals at SEBI’s latest board meeting held on Wednesday.
SEBI Chairperson Tuhin Kanta Pandey also announced changes to the SEBI (Delisting of Equity Shares) Regulations, 2021, aimed at simplifying the voluntary delisting process for certain public sector undertakings (PSUs). The amendment applies to PSUs where the combined shareholding of the Government of India and other PSUs is 90% or more.
“Eligible PSUs can now delist via a fixed price mechanism with a minimum 15% premium over the floor price, determined by registered valuers. The requirement for approval by two-thirds of public shareholders has been waived due to low public float,” SEBI Chairperson Tuhin Kanta Pandey said during the press briefing.
Separately, SEBI also approved a framework to govern co-investments by AIFs and their managers, sponsors, or co-investors. The proposal aims to bring transparency and fairness when investors participate alongside AIFs in specific investment deals.
Under the new norms, any co-investment made by a manager, sponsor, or co-investor must be on the same terms as the AIF, including timing of entry and exit. Managers are required to establish a clear policy on allocation of investment opportunities between the AIF and co-investors, with disclosures made to all investors in the fund.
SEBI stated, “To ensure parity, the terms of exit including timing and valuation must be identical. This will avoid any undue advantage being extended to specific investors or affiliates.”
The move is expected to foster better governance, particularly in private equity and venture capital funds where co-investment structures are common.
These approvals form part of SEBI’s ongoing effort to enhance market integrity, boost investor protection, and deepen India’s capital markets by facilitating regulatory flexibility where required.
