SEBI makes IPOs easier for startups with relaxed rules on shareholding and listing

The Securities and Exchange Board of India (SEBI) on Wednesday announced sweeping changes to the rules governing initial public offerings (IPOs), aimed at making it easier for Indian startups to list domestically and improve liquidity for investors.

The decisions were taken during SEBI’s board meeting and follow public consultations held in March 2025. The regulator said the reforms would offer greater flexibility to founders, investors, and companies looking to go public.

Key changes announced:

1) Relaxation on shareholding lock-in: Investors will now be allowed to sell shares received through Compulsory Convertible Securities (CCS) even if they haven’t held them for a full year, provided the shares are converted and allotted before the IPO. This is expected to improve liquidity and encourage more participation in Offer for Sale (OFS) components of IPOs.

2) Expanded OFS participation: A wider set of shareholders will now be eligible to take part in the OFS route, boosting share liquidity and improving public float in newly listed companies.

3) Support for 'reverse flipping': In a significant move to attract startups back to India, SEBI has allowed certain relaxations for companies returning from overseas domiciles (such as Singapore or Delaware) to list in India — a process often referred to as reverse flipping. This aims to reduce regulatory hurdles and make domestic IPOs more accessible for startups shifting their base back to India.

4) MPC and CCS recognition broadened: Promoter group members, banks, alternative investment funds (AIFs), and foreign investors will now be allowed to include their CCS holdings in the Minimum Promoter Contribution (MPC), a key requirement during IPO filings.

5) Flexibility for founders' shareholding: Founders will now be permitted to retain ESOP-like securities post-IPO, giving them more control and flexibility over their shareholding. Additionally, Employee Stock Option Plan (ESOP) shares granted up to a year before the Draft Red Herring Prospectus (DRHP) filing will now be considered valid, and promoters can also hold these shares.

SEBI said these decisions aim to make the IPO process more inclusive and attractive for new-age companies and their investors. “These changes will bring much-needed convenience to founders, investors, and startup stakeholders preparing for public listings,” the regulator stated.