Selling your ESOPs before an IPO: a guide for employees

If you joined a startup early, a large part of your net worth may be locked in ESOPs. Selling some of those shares before an IPO can fund a house, diversify your savings or simply reduce risk.

Step 1: Understand what you actually own

• Vested options are the right to buy shares at your exercise price. They are not shares yet.
• Exercised shares are real shares, usually held in your demat account or in an employee welfare trust.

Only exercised, dematerialised shares can be sold on the secondary market.

Step 2: Check your company’s rules

Your ESOP plan and the company's articles of association may include:

• A requirement for board or company approval before transfer
• A right of first refusal, where the company or existing investors can buy first
• Blackout periods, often around funding rounds and IPO filings

Ask HR or your company secretary for a written confirmation before you agree a sale.

Step 3: Understand the tax

ESOPs are taxed twice:

1. At exercise, the difference between fair market value and your exercise price is taxed as salary income, usually deducted by your employer.
2. At sale, the difference between your sale price and the fair market value on the exercise date is a capital gain. Unlisted shares held for more than 24 months from allotment qualify as long-term.

Read our tax guide and speak to your chartered accountant.

Step 4: Get a quote

On Finlaunch, use the Sell page to share the company, number of shares and the price you have in mind. A specialist calls you with a quote, usually within two working hours, and explains the transfer steps.

Step 5: Transfer and get paid

Once you accept the price, you transfer the shares off-market from your demat account. Payment reaches your bank account within two working days of the transfer.

Selling some of your ESOPs is not a vote against your company. It is a sensible way to turn paper wealth into something you can use.