ESOP Relief, PSU Exit Plan—Is Sebi About to Flip the Script?

Image Source: Taxscan

The Securities and Exchange Board of India (Sebi) will deliberate on two important proposals in its board meeting on June 18—one that could redefine retention of ESOPs by startup founders following an IPO, and another that could ease voluntary delisting for public sector undertakings (PSUs).

Key Points:

ESOP Relief for Founders: Sebi is considering providing ESOPs even to founders who are reclassified as promoters during the IPO. Currently, promoters are not allowed to receive ESOPs, putting founders who had received stock options as employees on a grey area.
CoolingOff Period: To avoid abuse, Sebi can provide a oneyear lag between the issuance of ESOPs and the decision of the company to go public. This would prevent ESOPs from being issued immediately before the IPO.
PSU Delisting Proposal: Voluntary delisting of PSUs where the government holds over 90% holding can also be allowed by Sebi. The move is targeted towards companies with poor finances and thin public float, giving a neater exit route.
Market Impact: Postapproval, the reforms are likely to boost founder incentives in nextgeneration tech firms and allow for PSU exits, consistent with evolving market sentiment.

The proposals reflect Sebi's intent to balance fintech flexibility with investor protection and efficiency in the public sector.

Sources: Economic Times, Moneycontrol, ET HRWorld