The Securities and Exchange Board of India (SEBI) is reportedly planning to make changes to its regulations in order to address concerns related to founders and their family members of tech or app-based start-ups owning shares under the employee stock ownership plan (ESOP).

The aim of these changes is to prevent founders from owning stock options if they have rights equivalent to those enjoyed by promoters. According to two sources with direct knowledge of the matter, SEBI is currently examining the gap in the law and whether it is being misused.

SEBI rules currently prohibit promoters from owning ESOPs, and a director who either himself, through his relative or any corporate body, directly or indirectly, holds more than 10% of the outstanding equity shares of the company is not eligible to receive stock options. However, the regulator is concerned that some founders may be using loopholes to gain rights equivalent to those of promoters. SEBI wants to revise the rules to ensure that founders do not have rights equivalent to those of promoters.

The move by SEBI is expected to affect many tech start-ups in India that have a founder-led structure. Founders have traditionally held a significant stake in their companies, but recently many have reduced their shareholding to below 10% and avoided the promoter tag. However, SEBI is concerned that some founders may be using alternative structures to gain the same rights as promoters, which would be a violation of the current rules.

India’s market regulator, SEBI, has revised its regulations, coinciding with the upcoming IPO of Paytm, one of the country’s leading fintech firms. Paytm’s founder, Vijay Shekhar Sharma, recently reduced his shareholding in the company to 9.1%, which qualifies him to receive shares under the Employee Stock Ownership Plan (ESOP). Paytm aims to raise $2.2 billion in its IPO, which is expected to be the largest IPO in India’s history.

This event is significant for the Indian start-up ecosystem and may encourage more Indian tech unicorns to follow suit and go public in the future. The revised regulations may provide a more conducive environment for Indian start-ups to list on the stock exchange, boosting the confidence of investors and driving further growth in the Indian economy. The Paytm IPO marks an exciting development for the Indian fintech sector, as it seeks to establish itself as a key player on the global stage.

The proposed changes to SEBI’s regulations are likely to have a significant impact on the Indian start-up ecosystem. Many tech start-ups in India are founder-led and have used ESOPs to incentivize and retain employees. SEBI’s aim is to ensure that the rules are not being misused and that founders do not have rights equivalent to those of promoters. SEBI is expected to make a decision on the proposed changes sometime this year.