Thought Leadership

Good governance: SEBI’s new regulations for ESOPs

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The Securities and Exchange Board of India (SEBI) notified the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 (SEBI ESOP Regulations 2021) on 13 August 2021. The SEBI-Employee Stock Option Plan (ESOP) regulations 2021 govern all sweat equity shares and share-based employee benefit schemes dealing in securities, including employee stock options, employee share purchase, stock appreciation rights, general employee benefits and retirement benefits (share-based benefit schemes). Purpose of the new regulation is to streamline and rationalise the provisions by:

  • Making them more robust
  • Synchronising them with global best practices
  • Improving ease of doing business

Key changes in the regulations

SEBI ESOP regulations 2021 include specific references to employees of a group company and its associate company. The term group has been included for the first time under the new regulations to mean two or more companies which, directly or indirectly, are in a position to:

  • Exercise 26% or more of the voting rights in the other company
  • Appoint more than 50% of members of the board of directors in the other company
  • Control the management or affairs of the other company.

Other key changes in SEBI ESOP regulations 2021 includes, in principle approval from the stock exchanges prior to the grant of options, vesting in case of superannuation/layoff, applicability of minimum vesting period in case of death, switch routes for implementation of scheme and many more.


SEBI ESOP regulations 2021 is a welcome step at a time when the markets are overwhelmed with positive intent owing to many new generation companies having listed their shares. The regulations provide additional flexibility, transparency and good governance in relation to dealing with equity shares in connection with share-based employee benefit schemes. To make the erstwhile regulations more robust and in sync with ease of doing business and best global practices, the new promulgated regulations are bringing dynamic changes to the industry and are expected to bring more needed change in the future in the corporate world.