Easier ESOPs for Startups and Faster PSU Delisting Under New SEBI Rules

by Priya Bhatiya

Posted on June 19, 2025

Easier Startup ESOPs

Recent SEBI Reforms:
SEBI has introduced significant reforms to ease the use of Employee Stock Option Plans (ESOPs) for startup founders, particularly those classified as promoters. Previously, founders who were considered promoters were not allowed to hold or be granted ESOPs after their company filed for an IPO; any such benefits had to be liquidated before the IPO. Under the new rules, founders who received ESOPs at least one year before filing the draft red herring prospectus (DRHP) can now continue to hold and exercise these options even after the company is listed.

Key Implications:

• Founders can retain ESOPs post-IPO if granted at least a year before DRHP filing.
• The move is expected to incentivize founders to remain committed and contribute to long-term value creation even after the company goes public.
• These changes also support startups undertaking “reverse flipping”—relocating their incorporation from abroad to India—by making the regulatory environment more attractive for founders and employees.

Industry Impact:
The reforms are seen as “reformist changes” with far-reaching effects, making it easier for startups to design founder- and employee-friendly ESOP plans that help attract and retain talent, foster a culture of ownership, and align interests for long-term growth.

Quicker PSU Delisting

SEBI’s New Delisting Framework for PSUs:
SEBI has also streamlined the voluntary delisting process for Public Sector Undertakings (PSUs) where the government or other PSUs hold at least 90% of the total shareholding. The new framework excludes banks, NBFCs, and insurance firms.

Key Changes:

• Fixed Price Mechanism: Eligible PSUs can now delist through a fixed price process, bypassing the traditional reverse book-building route. The offer price must be at least 15% above the floor price, which is determined by the highest of several metrics, including the volume-weighted average price over the past 52 weeks, the highest acquisition price in the past 26 weeks, or a valuation by two independent registered valuers.
• Waiver of Public Shareholder Approval: The requirement for approval by two-thirds of public shareholders has been waived, recognizing that these PSUs often have minimal public float, making such thresholds impractical.
• Handling Unclaimed Payments: If a delisted PSU is voluntarily struck off within 13 months, money due to non-tendering shareholders will be transferred to a designated account for seven years, after which it moves to the Investor Education and Protection Fund (IEPF) or SEBI’s Investor Protection and Education Fund (IPEF). Investors can claim their dues from these funds even after the transfer.

Rationale and Impact:
These changes address the challenges faced by PSUs with thinly traded shares and low public float, where market prices may not reflect the company’s real value. The reforms are expected to make the exit process more efficient, less costly, and more transparent for both the government and minority shareholders.

Summary Table: Key Regulatory Changes

These regulatory changes mark a significant step forward in improving the ease of doing business for startups and streamlining PSU exits from the stock market.

Ref: Sebi eases ESOP, shareholding rules for startup founders, paves way for smoother IPOs and reverse flipping