In FY 2024–25, SEBI introduced a series of impactful changes that will reshape how listed companies manage and disclose Employee Stock Option Plans (ESOPs) and other equity-based employee benefits. These updates aim to strengthen transparency, enhance investor confidence, and align with evolving corporate governance norms particularly relevant for companies preparing for IPOs or focused on retaining top talent.
Importantly, these changes were not made directly under the SEBI (SBEB & SE) Regulations, 2021, but were implemented through amendments to related frameworks such as the SEBI (LODR) Regulations, 2015, the SEBI (ICDR) Regulations, 2018, and draft consultation papers.
This article outlines the key changes, related compliance requirements, and the rationale behind them offering clear insights for legal, and compliance teams navigating the ESOP landscape.
The summary below outlines the key regulatory updates introduced by SEBI along with the rationale behind their implementation.
- MANDATORY DISCLOSURE OF ESOP SCHEME DOCUMENTS:
SEBI, through its circular dated December 31, 2024, has mandated listed entities to disclose their Employee Benefit Scheme documents excluding commercial secrets and such other information that would affect competitive position, (under SBEB & SE Regulations, 2021) on their official websites.
The said circular pertains to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations” or “LODR”).
Key Compliances required:
- Upload the entire ESOP/ESPS/SAR scheme documents on the company website after Shareholders approval.
- Rationale of redaction allowed commercially sensitive information.
- Board approval is required for any redacted content.
- Ensure redactions comply with SEBI-prescribed standards.
Rationale behind the amendment:
This amendment seeks to enhance transparency for stakeholders while safeguarding sensitive material information that may impact the competitive position of the listed entity.
Click here to read full circular: SEBI Circular No. SEBI/HO/CFD/CFD-PoD-2/CIR/P/2024/185 dated December 31, 2024.
- SEBI REVISES SHAREHOLDING DISCLOSURE FORMAT – IMPACT ON ESOP REPORTING
In a move to enhance disclosure transparency, SEBI issued Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/35 dated March 20, 2025, introducing a revised format for quarterly shareholding pattern filings by listed companies.
The said circular pertains to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations” or “LODR”).
Key Compliances required:
- Mandatory disclosure of:
- Non-Disclosure Undertakings (NDUs)
- Pledged shares and encumbrances
- Disclosure of outstanding convertible securities, including ESOPs, RSUs, and warrants.
- New column to report total shareholding on a fully diluted basis.
Rationale behind the amendment:
- Enables accurate assessment of promoter control and potential dilution.
- Aligns with SEBI’s ongoing focus on improved governance and market transparency.
Click here to read full circular: SEBI Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/35 dated March 20, 2025 .
- SEBI PROPOSED A CONSULTATION PAPER ON ESOPS GRANTED PRIOR TO FILING OF DRHP TO FOUNDERS WHO ARE CLASSIFIED AS PROMOTERS AT THE TIME OF FILING OF DRHP:
On March 20, 2025, SEBI released a consultation paper proposing that employees who are later reclassified as promoters may retain and exercise ESOPs granted to them at least one year prior to the IPO decision.
This consultation paper seeked comments / suggestions from the public on the following proposals relating to amendments to SEBI (ICDR) Regulations, 2018, (“ICDR Regulations”) and SEBI (SBEB & SE) Regulations, 2021,(“SBEB Regulations”)
Key Highlights of the Consultation paper:
- Applies to founders who are classified as “promoters” at the time of filing of DRHP grant.
- One-year minimum holding period ensures the grant made was as per eligibility prior to IPO.
Rationale behind the proposal:
- Resolves ambiguity in treatment of ESOPs when founders or key personnel transition to promoter status, at the time of filing of DRHP.
Update: The last deadline to submit public comments was April, 30, 2025. Post that the SEBI is yet to implement any such changes in the regulation as applicable.
Read the Consultation paper here: Reports for Public Comments
- SEBI MANDATES QUICKER DISCLOSURES FOR ESOP GRANTS -TIMELINE INTRODUCED
Through Circular No. SEBI/HO/CFD/CFD-PoD-2/CIR/P/2024/185 dated December 31, 2024, SEBI has tightened disclosure timelines including ESOP/ESPS approvals. Listed companies must now disclose Board decisions on the issuance/grant of stock-based benefits based on the materiality provisions.
The said circular pertains to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations” or “LODR”).
Key Compliances Required:
Regulation 30(6) of the LODR Regulations specifies that the listed entity shall first disclose to the stock exchange(s) all events or information which are material in terms of the provisions of the LODR Regulations as soon as reasonably possible and in any case not later than the following:
Board Decisions:
- Within 30 minutes of closure of Board meeting.
- If the meeting ends aftermarket hours, and more than 3 hours before next market open, disclose within 3 hours of closure.
Internal Events (within the company):
- Disclose within 12 hours of occurrence.
External Events (outside the company):
- Disclose within 24 hours of occurrence.
- Ensure the disclosure is made via the stock exchange platform and follows material event reporting protocols.
Rationale behind the amendment:
- Aims to improve market transparency and reduce information asymmetry.
- Aligns ESOP grant disclosures with existing norms for price-sensitive information.
Click here to read full circular: SEBI Circular No. SEBI/HO/CFD/CFD-PoD-2/CIR/P/2024/185dated December 31, 2024 .
- ESOP & SAR DISCLOSURE REQUIREMENTS – AMENDMENT IN SEBI ICDR, 2018
SEBI has provided more clarity and to strength the norms for the Companies who are filing for the main board IPO, need to consider and comply with these new revisions including the continuing disclosures, in alignment with SEBI (LODR) Regulation 2018.
These revisions were amended in the SEBI (ICDR) Regulations, 2018 dated March 08,2025.
Few of the key Compliance required:
- Outstanding Convertible Securities
- Disclose any outstanding instruments (e.g. ESOPs, SARs, warrants) that may convert into equity.
- Exemption:
- Valid ESOPs granted under Companies Act, 2013 and accounting standards.
- SARs granted to employees only if fully exercised into equity shares before filing of the RHP or Prospectus.
- Detailed Break-up of ESOPs & SARs (if applicable):
- Total options/SARs granted, vested, exercised, and lapsed.
- Vesting schedules, exercise price, and expiry terms.
- Impact on Capital Structure:
- Disclose potential dilution to determine Minimum Promoters Contribution taking into consideration of outstanding conversion of options or SARs.
- Provide the post-issue capital structure on a fully diluted basis.
- Lock in Period exemption to equity shares held by an ESOP trust or transferred to employees through ESOP Scheme/SAR Scheme’s including the equity shares so allotted pursuant to a bonus issue against the options issued through ESOP Scheme/SAR Scheme’s
- Exception to outstanding SAR’s granted to a SAR scheme, which have been fully exercised, prior to filing of RHP.
Rationale behind the Amendment:
- To provide transparency to investors regarding existing equity-linked commitments.
- To ensure accurate assessment of dilution risk due to ESOPs or SARs.
- To prevent surprise equity issuance post-IPO.
Click here to read amendments: SEBI ICDR Regulation 2018
Conclusion
These developments mark a significant shift in the regulatory framework governing employee equity schemes in India. Companies preparing for IPOs or already listed should review their existing ESOP frameworks, Board processes, and disclosure mechanisms to ensure full compliance with SEBI’s evolving standards.
