SEBI Planning To Plug Gaps Allowing Founders To Own Stock Options

SEBI Planning To Plug Gaps Allowing Founders To Own Stock Options

SEBI is inspecting the hole within the regulation and whether or not it’s being misused. (File)


The capital markets regulator is planning to alter its guidelines to deal with considerations round founders and members of the family of tech or app-based startups proudly owning shares underneath the worker inventory possession plan (ESOP), two sources informed Reuters.

The Securities and Exchange Board of India (SEBI) doesn’t need founders to personal inventory choices if they’ve rights akin to these loved by promoters, the sources with direct data of the matter mentioned.

A call on this regard may come someday this yr, the sources added.

Under Indian legal guidelines, promoters maintain direct and oblique management over the corporate, advise, direct and instruct the board of administrators, and have the fitting to appoint administrators to the board, however are barred from proudly owning ESOPs.

“In new-age tech corporations, founders have decreased their shareholding to under 10% and have stayed away from the promoter tag,” the primary supply mentioned.

The regulator is inspecting the hole within the regulation and whether or not it’s being misused, the supply added.

One key instance has been One97 Communications Ltd, popularly often known as Paytm, whose founder, Vijay Shekhar Sharma, owned 14.7% fairness a yr earlier than submitting to go public in 2021.

As per present rules, “a director who both himself, by means of his relative or any company physique, immediately or not directly, holds greater than 10% of the excellent fairness shares of the corporate” isn’t eligible to obtain inventory choices.

Vijay Shekhar Sharma decreased his shareholding to 9.1% by transferring 30.97 million shares to Axis Trustee Services Limited, appearing on behalf of the Sharma household belief in 2021, which made him eligible to obtain shares underneath the ESOP.

This looks as if an occasion distinctive to Paytm, the place the belief route has been used to cut back direct fairness holding to under 10%, the second supply mentioned.

“The intention of the rules is to incorporate all constructions for fairness holding. This is a spot which must be plugged, it is going to be achieved through an modification to SEBI’s inventory choices guidelines,” the supply added.

Emailed queries despatched to Paytm and SEBI weren’t answered instantly. The sources declined to be named because the discussions are confidential.

Institutional Investor Advisory Services (IIAS) first flagged considerations round Vijay Shekhar Sharma’s ESOP purchases in January.

Equity held in belief constructions isn’t addressed immediately and the designation of a founder isn’t outlined, COO Hetal Dalal mentioned, highlighting the 2 key gaps within the present rules.

“As a end result, founders in new-age tech corporations get pleasure from all the advantages of being promoters and turn into eligible to obtain ESOPs, however have not one of the limitations and authorized duties of promoters”.

The bigger difficulty of how founders ought to be outlined is being addressed by a particular objective, 20-member panel headed by former Chief Justice of Punjab and Haryana High Court, Shiavax Jal Vazifdar, the primary supply mentioned.

“The panel has held two conferences to date, and is drafting a report on simplifying and strengthening the present norms round mergers, acquisitions and fundraising,” the supply added.

In 2021, to maintain with world practices, SEBI issued a session paper that urged shifting away from the promoter tag to the controlling shareholder tag, nevertheless it hasn’t but formalised the norms.

(Except for the headline, this story has not been edited by NDTV employees and is printed from a syndicated feed.)

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