India's Securities and Exchange Board of India (SEBI) has considered introducing a new rule that makes it possible for startup founders to hold on to their Employee Stock Option Schemes (ESOPs) when their companies issue initial public offers (IPOs). Often, founders of technology startups receive ESOPs or equity-linked instruments rather than cash payments for the early period of their organizations. These options align the interest of the founders with other stakeholders. However, as these companies attract investment, the founders' ownership often gets diluted.

Presently, SEBI rules mandate founders to be categorized as promoters while submitting the IPO document, and the regulation bars ESOPs from being granted to promoters. This places employees who become promoters because of their shareholding, including stock options, at risk of losing their benefits a situation SEBI has said may not be fair.

As a response to representations, SEBI has suggested clarifying the regulation by inserting an explanation which would enable founders to hold on to their ESOPs, vested or unvested, after being deemed promoters in the Draft Red Herring Prospectus (DRHP). Nevertheless, SEBI also assured that the regulation barring new share-based benefits from being issued to promoters would continue to be applicable to founders once they are deemed promoters.