Founder-friendly amendment to SEBI SBEB Regulations, 2021

On September 8, 2025, the Securities and Exchange Board of India (“SEBI”) issued the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) (Amendment) Regulations, 2025 ("SEBI SBEB Regulations”), effective from the date of publication in the Official Gazette (“Amendment”).

Pursuant to this Amendment, a new regulation, Regulation 9A, has been added to the SEBI SBEB Regulations.

The effective change is that employees who are designated as promoters or promoter group members in the draft red herring prospectus (“DRHP”) are permitted to retain and/or exercise stock options, stock appreciation rights, or similar share-based benefits as long as those benefits were granted at least one year prior to filing the DRHP with SEBI. This is subject to compliance with all terms of the underlying employee stock option plan (“ESOP”)/employee stock appreciation rights (“ESAR”) scheme, the SEBI SBEB Regulations, and other applicable laws.

Prior to the Amendment, employees, who were identified as promoters and/or members of the promoter group in the DRHP of an IPO-bound company, were barred from holding or exercising any share-based employee benefits if the company was proposing an initial public offering (“IPO”) and post listing. In order to effectuate this bar, such rights and benefits of the promoters and promoter group entities were required to be liquidated or forfeited prior to the filing of the DRHP with SEBI.

It is pertinent to note that the Amendment does not permit fresh grants of options to employees who are categorised as promoters and promoter group in the DRHP.

Instead, it provides a founder and company management friendly relaxation, which may especially be beneficial to founders in a scenario where founders are designated for various reasons as promoters in the IPO process (often despite a shareholding that is below the regulatory threshold).

This note does not constitute legal advice and is not intended to create an attorney-client relationship.

For any questions and/or clarifications regarding the subject matter, please contact:

Srishti Ojha (Partner) (srishti.ojha@veristlaw.com)

Nayan Jain (Partner) (nayan.jain@veristlaw.com)

Kanchi Malhotra  (Senior Associate) ( kanchi.malhotra@veristlaw.com)