A founder called me three weeks before his board meeting to finalise the DRHP. He wanted me to look at the ESOP scheme “just as a formality.” Forty minutes into that call, the formality had quietly turned into the single biggest governance gap standing between his company and the markets — a clear failure of ESOP pool IPO readiness, and one that could easily have been avoided.
I wish I could say this was unusual. It isn’t. In two decades of advising companies through IPO readiness, I’ve watched more DRHPs stall over ESOP structuring than over almost any other governance issue — more than related party disclosures, more than related-entity conflicts, sometimes even more than financial restatements. And it’s almost always for the same reason: founders think of the ESOP pool as an HR instrument. A retention tool. A hiring sweetener.
It is that. But the day you start preparing for a public listing, your ESOP pool stops being an HR file and becomes a legal and disclosure instrument. And it needs to be governed like one. ESOP pool IPO readiness isn’t something you bolt on in the final quarter before filing — it has to be built into how you administer the scheme from year one.
The Problem Nobody Flags Until It’s Too Late
Here’s what usually happens. A company sets up its ESOP scheme early, often using a template a lawyer friend passed along, or something pulled off from the internet. The scheme gets board approval, then the shareholders ratify it, and it runs quietly in the background for five, six, sometimes eight years. Grants get made. Vesting happens. Employees exercise options. Nobody revisits the scheme’s compliance posture against evolving SEBI norms or the Companies Act, 2013. It’s working, and running , why would they ?
Then the IPO conversation starts, and the DRHP drafting team comes looking for documentation: board resolutions for every grant, shareholder approvals for every pool expansion, trust deed compliance if a trust structure was used, valuation certificates tied to each grant date, and a clean audit trail linking all of it together. And in company after company, I find gaps in that trail. Grants made without proper board minutes. Pool expansions that never went back to shareholders. Vesting changes agreed informally over email and never ratified by anyone.
I want to be clear — none of this is fraud. It’s simply what happens when a scheme gets administered as an operational HR task instead of a governance function. But [SEBI’s ICDR disclosure requirements] for pre-IPO ESOP schemes don’t leave room for missing paperwork, however good your intentions were. This is the real meaning of ESOP pool IPO readiness, not whether your scheme looks tidy today, but whether every grant made since inception can survive regulatory and investor scrutiny.
What ESOP Pool IPO Readiness Actually Requires
I tell every founder the same thing: your ESOP pool deserves the same discipline you’d give your financial statements. That comes down to four things, and none of them are negotiable.
A complete grant register-Every grant, every vesting date, every modification, tied to a specific board resolution. If you can’t produce this the moment someone asks, you’re not ready no matter how strong your business fundamentals look.
Alignment between pool size and shareholder approvals- Pools get expanded as companies scale and hire faster. I’ve seen pools that quietly doubled or tripled in size with only the original, inception-stage approval on file. That mismatch is one of the first things a merchant banker’s due diligence team will flag.
Valuation discipline- Every grant needs a fair value computed at the grant date, using a consistent methodology. Retrofitting valuations years later with assumptions that don’t match what the company looked like financially at the time invites exactly the scrutiny you’re trying to avoid during a DRHP review.
Board and Audit Committee oversight- Under Schedule IV and the broader intent of the Companies Act, 2013, your independent directors should be reviewing ESOP administration periodically — not encountering it for the first time when the IPO banker starts asking questions. If your board has been rubber-stamping ESOP matters without genuine oversight, that’s a fiduciary liability question waiting to surface at the worst possible moment.
Timing Is Everything
The founders who get this right start the governance overhaul twelve to eighteen months before their intended DRHP filing, not three weeks. That runway gives you room to reconstruct missing board resolutions where possible, seek retrospective ratification where it’s legally permissible, and, more importantly, fix the process so every new grant is clean from day one.
I’ve also seen the opposite mistake, founders so anxious about ESOP compliance that they freeze all new grants in the run-up to the IPO, which creates its own problem: a demotivated workforce right when execution matters most. The answer isn’t to stop granting. It’s to grant properly, with documentation that keeps pace with the business.
There’s a boardroom dimension to this too, one people underestimate. An Audit Committee that understands ESOP mechanics vesting cliffs, cashless exercise structures, trust-based versus direct schemes is far better equipped to ask the right questions before the DRHP is drafted, not after SEBI raises them. It’s exactly why I think boardroom training and ESOP governance belong in the same conversation, not as two separate workstreams handled by two different teams who never talk to each other.
A Practical Starting Point:
If you’re eighteen to twenty-four months from a potential IPO, here’s where I’d tell you to start: pull every ESOP grant made since the scheme’s inception and map it against board resolutions and shareholder approvals. Wherever you find gaps, bring in your company secretary and legal counsel immediately. Some gaps can be cured through ratification. Others can’t. You need to know which is which well before a banker’s due diligence team finds out for you.
If you haven’t yet mapped out the broader disclosure discipline your DRHP will demand, it’s worth reading [our earlier piece on DRHP preparation] (/drhp-readiness-checklist) alongside this one. At its core, ESOP pool IPO readiness is a test of whether your governance kept pace with your growth. Companies that treat their ESOP scheme as a living governance instrument reviewed, documented, and board-supervised at every stage walk into their DRHP filing with one less fire to put out. Companies that don’t, discover the gap at the worst possible moment: when the regulator, the banker, and the market are all watching at once.
I’d rather my clients hear this from me eighteen months out than from their merchant banker three weeks before filing.
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Dr. Vikash Goel is the Managing Partner at Omnifin, where he advises companies on IPO readiness, Valuation, and Corporate governance. With two decades of experience as an independent director and governance advisor, he works closely with founders and boards to prepare companies for the scrutiny that comes with going public.