The Securities and Exchange Board of India (SEBI) is reportedly considering steps to address concerns about stock options held by founders of tech startups and their family members.
According to Reuters, the market regulator is considering amending its rules to prohibit startup founders with rights equivalent to promoters from owning shares in employee stock ownership plans (ESOPs).
A final decision on the matter could be made as early as later this year. Promoters are not permitted to own ESOPs under current regulations, but they do have a number of rights, including the ability to advise and direct the board of directors. They also have the authority to appoint directors to the board.
Promoters are defined as shareholders who own more than 10% of a company. “In new-age tech companies, founders have reduced their shareholding to less than 10% and avoided the promoter tag,” a source said.
SEBI is said to be looking into gaps in current regulations as well as misuse of the rules.
According to the report, which cites sources, SEBI intends to ‘include all structures for equity holding’ in the new norms, which will be implemented through amendments to SEBI’s stock options rules.
Furthermore, a source close to the situation stated that a 20-member panel is investigating how founders should be defined. The panel, led by former Chief Justice of the Punjab and Haryana High Court Shiavax Jal Vazifdar, has already held two meetings and is working on a report to simplify and strengthen current mergers and acquisitions and fundraising norms.
