This blog explains everything employees need to know about selling ESOPs before an IPO in India in 2025.
📌 What are ESOPs?
ESOPs (Employee Stock Ownership Plans) are options given by a company to its employees, allowing them to purchase company shares at a pre-decided price (called the exercise price) after a vesting period.
Think of it as a bonus in the form of equity. If your company does well and its valuation grows, so does the value of your ESOPs.
🧮 How Do ESOPs Work?
- Grant: The Company grants you a certain number of ESOPs.
- Vesting Period: ESOPs become available in phases (e.g., 25% per year).
- Exercise: You pay the exercise price to convert them into actual shares.
- Exit: You sell those shares either:
- During IPO
- After IPO
- Or before IPO (which we’ll focus on here)
🔄 Can Employees Sell ESOPs Before IPO?
Yes, in many cases. If your company allows it and you’ve exercised your options, you may sell your unlisted shares (converted ESOPs) on the secondary market — before the IPO — usually to:
- Venture Capital (VC) funds
- Pre-IPO investors
- Unlisted share platforms (like PreipoShare.in)
- Other eligible investors
✅ Pre-Conditions to Sell ESOPs Before IPO
Before you sell ESOPs in the Pre-IPO market, ensure:
| Requirement | Explanation |
|---|---|
| Vested & Exercised | Only exercised ESOPs can be sold (you must hold the shares) |
| Company Policy | Company must allow secondary sales before IPO |
| Shareholder Agreement | There might be lock-in or ROFR (Right of First Refusal) |
| Valuation & Buyers | You must find a buyer and agree on share valuation |
📊 How to Sell Your ESOP Shares Before IPO – Step-by-Step
Here’s a simplified flow of selling your ESOP-converted shares in the Pre-IPO market:
- ✅ Check with HR/Finance if selling is allowed and get latest shareholding data
- 📝 Execute Exercise of your options (pay exercise price + taxes if any)
- 📈 Get valuation or quote from a verified buyer/platform
- 🤝 Negotiate and sign share transfer agreement
- 🔒 Comply with ROC/Company requirements
- 💰 Receive payment via escrow or direct transfer
You can use regulated platforms like PreipoShare.in to connect with genuine buyers, complete documentation, and securely sell your shares.
💡 Why Employees Sell ESOPs Before IPO
- 💵 Liquidity: Unlock cash from paper wealth
- 🧾 Tax Planning: Manage taxes before IPO listing
- 🛡️ Risk Management: Avoid holding during volatile IPO pricing
- 🧘 Peace of Mind: Exit partially to diversify assets
⚠️ Risks & Considerations
Before selling, evaluate:
- 📉 Discount to Fair Value: Pre-IPO shares often sell below the estimated IPO price
- 🔐 Lock-in or Legal Clauses: Check for contractual restrictions
- 💼 Employer Relations: Transparent communication is key
- 💸 Capital Gains Tax: May apply on sale — consult a tax expert
📁 Platforms for Selling ESOP Shares in India
Here are reliable options for employees to sell shares before IPO:
| Platform Type | Details |
|---|---|
| Unlisted Platforms | PreipoShare.in |
| Company Buyback | Offered by some startups before IPO |
| Private Investor Deals | Negotiated one-on-one with interested buyers |
🧾 Tax Implications on ESOP Sale
| Scenario | Tax Treatment |
|---|---|
| At Exercise | Treated as a perquisite (added to salary) |
| At Sale (Before IPO) | Capital gains tax applies (based on period of holding) |
| Holding < 24 months | Short-term capital gains (slab rate) |
| Holding > 24 months | Long-term capital gains (20% with indexation) |
💡 Pro Tip: Keep all documentation — grant letter, exercise proof, and sale deed — for audit and compliance.
🛎️ Final Thoughts
For employees at high-growth startups, ESOPs can be life-changing — but only if managed wisely. Selling shares before the IPO can help you realize value early, reduce risks, and diversify your portfolio.
📚 FAQs on Employee Stock Option Plans (ESOPs)
Q1: Can I sell ESOPs before exercising them?
No. You need to first exercise your ESOPs to convert them into shares.
Q2: Do all companies allow ESOP sale before IPO?
Not always. It depends on the company’s internal policy and shareholder agreement.
Q3: Will I get IPO price for my shares in the pre-IPO market?
Usually not. You may have to sell at a discount to projected IPO price due to risks and illiquidity.
Q4: Is there a tax when I exercise ESOPs?
Yes. It’s treated as a perquisite and taxed under income tax if you’re an Indian resident.