SEBI plans to fill the gap allowing founders to hold stock options

SEBI plans to fill the gap allowing founders to hold stock options

SEBI is probing whether there is a lacuna in the law and whether it is being misused. (file)


Two sources told Reuters the capital markets regulator is planning to change its rules to address concerns about founders and family members of tech or app-based startups.

The Securities and Exchange Board of India (Sebi) does not want founders to have stock options if they have rights similar to those enjoyed by promoters, said sources with direct knowledge of the matter.

Sources said that a decision in this regard may come this year.

Under Indian laws, the promoters exercise direct and indirect control over the company, advise, guide and direct the board of directors, and have the right to nominate directors on the board of directors, but are barred from owning ESOPs .

“In new-age tech companies, founders have diluted their stake to less than 10% and are doing away with the promoter tag,” said the first source.

The source said the regulator is examining the gap in the law and whether it is being misused.

A prime example is One97 Communications Ltd., better known as Paytm, in which founder Vijay Shekhar Sharma held 14.7% equity a year before it filed to go public in 2021.

As per current regulations, “a director who either himself, his relative or through any body corporate, directly or indirectly, holds more than 10% of the outstanding equity shares of the company” is not eligible to receive stock options. Is.

Vijay Shekhar Sharma reduced his shareholding to 9.1% in 2021 by transferring 30.97 million shares to Axis Trustee Services Ltd, acting on behalf of the Sharma Family Trust, making him eligible to receive shares under the ESOP.

The second source said this seems to be a unique instance for Paytm, where the trust route has been used to dilute direct equity holding below 10%.

“The intention of the regulations is to cover all structures for equity holding. This is a gap that needs to be filled, which will be done through amendments to SEBI’s stock options regulations,” the source said.

Email queries sent to Paytm and Sebi were not immediately replied to. The sources declined to be named because the discussions are confidential.

Institutional Investor Advisory Services (IIAS) first raised concerns about Vijay Shekhar Sharma’s ESOP purchase in January.

Highlighting two key gaps in the existing rules, COO Hetal Dalal said equity held in trust structures is not directly addressed and the position of a founder is not defined.

“As a result, founders of new-age tech companies enjoy all the benefits of being promoters and become eligible to receive ESOPs, but without the limitations and legal responsibilities of promoters”.

The larger issue of how founders should be defined is being addressed by a special purpose, 20-member panel headed by former Punjab and Haryana High Court chief justice Shiavax Jal Vazifdar, the first source said.

“The panel has held two meetings so far and is preparing a report on simplifying and strengthening the existing norms for mergers, acquisitions and fundraising,” the source said.

In 2021, to keep up with global practices, SEBI released a consultation paper suggesting a move away from the promoter tag to the controlling shareholder tag, but it is yet to formalize the norms.

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


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