Designing ESOPs in India: What Founders, CFOs, and CHROs Need to Know

Employee Stock Ownership Plans (ESOPs) have evolved into a sophisticated tool for attracting, retaining, and motivating talent in the Indian market. In 2025, they’re no longer just a “startup perk” but a strategic lever for aligning employee interests with business growth while meeting increasingly stringent compliance requirements. For founders, CFOs, and CHROs, the challenge lies in designing ESOPs that are both attractive to employees and sustainable for the company’s future.

Today, ESOP structuring in India demands more than just setting allocation percentages. It’s about ensuring that every element, from vesting schedules to performance triggers, aligns with both short-term operational needs and long-term growth. Investors, too, are scrutinising how ESOPs are managed, as poorly planned schemes can create dilution issues or misaligned incentives during funding rounds.

To put this into perspective, here’s how the ESOP design structure is shifting in 2025:

The taxation angle is where many ESOPs succeed or fail in creating real value for employees.  Under current Indian tax norms, employees generally face a dual tax burden:

1. Perquisite tax at exercise (based on the fair market value of shares)
2. Capital gains tax at sale (based on appreciation post-exercise)

However, for eligible startups, the income tax law provides relief by allowing deferment of the perquisite tax. Employees can postpone this tax liability until the earliest of: (i) five years from the year of exercise, (ii) the date of sale of shares, or (iii) the date they cease employment, whichever comes first.

This provision reduces the immediate financial pressure, though the eventual liability still exists. Forward-thinking companies are therefore:

1. Offering tax education sessions to employees
2. Timing grants and exercises strategically to optimise outcomes

3. Exploring trust structures or phased exercises to smoothen liabilities

The first quarter of 2025 has already shown a marked shift in ESOP allotment patterns. Rather than granting a lump sum at joining, companies are:

1. Issuing smaller, staggered grants over time
2. Linking vesting to both tenure and performance metrics
3. Keeping an equity reserve for future leadership hires

This conserves equity while ensuring that high performers remain engaged for the long haul.

Liquidity has also become a primary retention driver. In 2025, companies are actively creating liquidity programmes so employees can monetise part of their holdings through secondary transactions or structured buybacks. 

The complexity rises when companies with ESOPs aim for global expansion. Reverse flip mergers, overseas listings, and cross-border acquisitions introduce additional regulatory and tax hurdles. In these cases, planning ahead for:

1. multi-jurisdictional compliance,
2. foreign exchange considerations, and/ or
3. cross-border tax obligations is essential to avoid costly restructuring later.

Ultimately, ESOPs in India in 2025 are not “set-and-forget” schemes. They are dynamic instruments that require continuous review, transparent communication, and careful alignment with business objectives. Founders and leadership teams that design with foresight, balancing compliance, liquidity, and employee motivation, stand to gain a distinct advantage in both talent retention and investor trust.

From Idea to IPO: Regulatory Milestones Every Indian Startup Must Cross

Turning a startup from concept to a listed company is a journey filled with regulatory milestones. With renewed investor enthusiasm and a buoyant equity market, India’s IPO pipeline looks promising for 2025. Yet, navigating this path requires understanding both the rhythm of the market and the regulatory checkpoints ahead.

IPO Market Momentum: Where Are We in 2025?

• In H1 2025, the Indian IPO market remained robust, with 108 IPOs (39 mainboard and 69 SMEs) raising USD 4.6 billion, a testament to quality and demand despite global uncertainties.
• The second half of 2025 has a pipeline of offerings worth ₹2.6 lakh crore, encompassing players from fintech and retail to healthcare and tech.
• Over 80 companies have filed their Draft Red Herring Prospectuses (DRHPs) with SEBI as of July 2025, spanning traditional businesses and new-age startups.

Key Regulatory Milestones for Startup IPOs

The roadmap to an IPO in India typically spans 7–12 months, depending on the thoroughness of due diligence and the size of the issue. Here’s a snapshot of the regulatory path:

Why Compliance Matters for Startups

• Investor Confidence: Regulatory compliance signals that the startup operates transparently and ethically, which attracts both domestic and foreign investors, ultimately strengthening its fundraising prospects and valuation potential.
• Market Access: Meeting legal requirements ensures eligibility for IPO listing and market participation, enabling the business to access broader capital markets and lucrative global expansion opportunities.
• Risk Mitigation: Strong compliance frameworks help prevent legal disputes, reputational damage, and financial penalties, protecting operational continuity and enhancing the startup’s long-term sustainability in competitive markets.

Keeping a Track: Who’s Heading to IPO?

• Inc42 tracker notes that around 20 startups were in various stages of IPO prep at the start of 2025.
• Top contenders include Ather Energy (successful listing in mid-2025), Prozeal Green Energy, and OfBusiness.

Why It Matters: Early Entrants Gain an Edge

Being ready early not only secures a prime listing window but also allows startups to capture heightened investor attention before the market becomes crowded. In a bullish cycle, early movers can secure better valuations, face less competitive noise, and leverage fresh investor enthusiasm, often translating into stronger brand positioning and long-term shareholder confidence.

At Walmond Consultancy LLP, we help startups decode this regulatory maze, from preparing the DRHP to launching the IPO and beyond. Whether you’re tracking the Indian startup IPO pipeline in July 2025, setting up a startup IPO tracker for 2025, or ensuring regulatory compliance, our strategic guidance keeps you market-ready and investor-aligned.

Ready to map your startup’s path to IPO? Let’s chart the milestones together. Reach out to us at info@walcon.in or call us at +91 98186 68392 and we shall assist you in no time!