Pre-IPO Checklist for Indian Promoters: Tax and SEBI

Key Takeaways

• Move family holdings into a trust before the IPO. After listing, transfers among promoters face SEBI conditions, and some structures are no longer possible.
• Keep enough shares outside the trust for the minimum promoter contribution and any offer for sale, because the holding periods restart when the trust receives shares.
• Issue bonus shares well ahead of the IPO, and keep them in a separate demat account.
• Approve the ESOP plan, and exercise old options, before listing.
• Restructure, clean up the accounts and fix past non-compliance early. Start collecting promoter group and group company information now.

The SEBI lock-ins, in brief

Shares bought in the year before the IPO at a price below the IPO price, and bonus shares issued out of revaluation reserves or unrealised profits in the previous three years, cannot count towards the minimum promoter contribution.

The checklist

1. Settle a family trust before the IPO

A family trust is a strong tool for succession. Set it up and transfer shares before listing. After listing, a transfer to a trust generally needs to fit SEBI’s exemptions for transfers among promoters, which require them to have been named as promoters for at least three years, or SEBI’s approval.

If the IPO is less than a year away, do not move all the shares. Keep a portion outside for the minimum promoter contribution and the offer for sale. Unlike income tax, the ICDR Regulations do not treat a transfer to a family trust as a neutral event: the trust’s holding period starts on the day it receives the shares.

Before listing, a family can also use sub-trusts and a corporate trustee. These options are not available after listing.

Where more than one family or family trust is involved, sign a shareholders’ agreement, and make it override the trust deeds, not the other way round. A shareholders’ agreement stays valid after listing, with limits: it cannot bind the company, but it binds the shareholders to each other. See Guide on Private Trusts.

2. Approve the ESOP plan before listing

An ESOP plan approved before listing is attractive for employees and avoids extra regulatory steps after listing. Old options should be exercised before the IPO, which is usually far better for the employees’ tax.

3. Issue bonus shares early

A bonus issue is a simple way to increase the share capital or number of shares before an IPO. Issued just before the IPO, bonus shares are new short-term holdings with a cost of nil, and selling them in the offer for sale is taxed as a short-term gain. Issue them well in advance, ideally two years before. See Bonus Shares Before an IPO: The Short-Term Gains Trap.

Hold the bonus shares in a separate demat account. That keeps the choice of which shares to sell or move: for example, the short-term bonus shares with nil cost can go to the trust while the original shares are sold in the offer for sale. In a single account, the first-in, first-out rule decides for you.

4. Restructure in advance

Take out non-core assets, including real estate and businesses that will not be part of the IPO, and combine the businesses that will. The usual routes are a slump sale (quick, but taxed), a demerger (tax neutral but slow) or a merger. Note that a fast-track demerger may not be tax neutral: see Fast-Track Demergers.

5. Clean up the financial statements

There are usually gaps in the accounts. Fix them early, so that the due diligence does not throw up surprises late in the process.

6. Fix past non-compliance

Regulatory, tax and legal defaults all surface in due diligence and in the offer document. Regularise them before filing.

7. Start collecting promoter group information

The promoter group is defined widely and includes relatives and the companies they control. Getting specific information about companies run by siblings or in-laws can be difficult and awkward, so start early.

8. Identify group companies

“Group companies” include related parties over the last three years, which can take in a former joint venture partner. Getting information from an estranged or overseas partner can be hard, and an exemption from SEBI is difficult to obtain.

FAQ

Can promoters move shares to a family trust after the IPO?
Generally only within SEBI’s exemptions for transfers among promoters, which need a promoter history of at least three years, or with SEBI’s approval. It is much simpler before listing.

Does a transfer to a trust restart the lock-in?
For the ICDR holding periods, yes: the trust’s holding period starts when it receives the shares. Keep enough shares outside the trust for the minimum promoter contribution and the offer for sale.

How long are promoter shares locked in after an IPO?
The 20% minimum promoter contribution is locked in for 18 months (3 years if most of the fresh issue funds capital expenditure), and the rest of the promoter holding for 6 months (1 year in the capital expenditure case).

When should bonus shares be issued?
Well before the IPO, ideally two years, so that shares sold in the offer for sale are long-term holdings.

Talk to KCM about IPO readiness: contact us.

Sources and last checked: 10 November 2026

• SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, regulations 14 to 17 (minimum promoter contribution and lock-in), as amended to 2026.
• SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, regulation 10(1)(a) (transfers among promoters).
• Mondaq, “Decoding the IPO lock-in framework under the SEBI ICDR Regulations” (May 2026).
• Originally shared on LinkedIn by Suril Mehta: https://www.linkedin.com/posts/surilm_ipo-mpc-sebi-share-7399918626302205952-1mTb/

This is not to be construed as legal advice. The actual advice will depend upon the facts and will have to take into consideration the case-specific facts and the anti-abuse regulations.