📄 Article
✓ Link checked
India
Free
Intermediate
This is the cleanest answer to why a co-founder should hold shares, not ESOPs, in an Indian Pvt Ltd. It spells out Rule 13 of the Companies (Share Capital and Debentures) Rules: a promoter or director holding over 10 percent equity is barred from receiving ESOPs at all, which is exactly why options are the wrong instrument for a founder. It then lays out the real founder routes (sweat equity shares, the narrow 10-year DPIIT startup exception) and cites the Vijay Shekhar Sharma unvested-ESOP forfeiture as the cautionary tale.
Can ESOPs Be Issued to Promoters & Founders? Legal Guide
From Startup Movers by Startup Movers 10 min read
- Under Rule 13, a promoter or director holding more than 10 percent equity generally cannot receive ESOPs, so options do not fit a real co-founder.
- Founders take equity as sweat equity shares or subscription at incorporation; DPIIT-recognised startups get a narrow 10-year window to grant founders ESOPs.
- The Paytm founder having to surrender 21 million unvested ESOPs shows the control and forfeiture risk of dressing a founder up as an option-holder.
