The Employee Category in an IPO is a special quota reserved exclusively for the employees of the issuing company.
This category allows eligible employees to participate in their company’s IPO, often at discounted prices, as an incentive and a gesture to foster employee ownership.
This article explains what the employee category is, who can apply, and its benefits.
What is Employee Category in IPO?
- It is a share portion reserved specifically for company employees and sometimes those in its subsidiaries or holding companies.
- The reserved portion can amount to up to 5% of the post-issue paid-up capital as per SEBI regulations.
- Employees apply in this category separately from retail, institutional, or non-institutional investors.
Eligibility Criteria for IPO Employee Category
- Must be a full-time, permanent employee of the company or its subsidiaries on the active payroll.
- Contractual or temporary staff generally are not eligible.
- Employees should be Indian residents unless otherwise specified in exceptions.
- Employees closely related to company directors or consolidated entities may qualify based on prospectus provisions.
- A valid PAN and demat account linked to the employee records are mandatory, and to know your limits, review the rules for the maximum lots an employee can apply in an IPO.
Benefits of Employee Category in IPO
- Reserved Share Quota: Employees get preferential access to a reserved portion of allotment, improving chances compared to open categories.
- Discounted Share Price: Shares are often allotted at a discount relative to the retail IPO price.
- Boosts Employee Ownership: Encourages employees to have a stake in company growth and align interests.
- Separate Allotment Process: Employee category allotments handled independently, often leading to better allocation rates. To understand what happens next, see our explanation of the share allotment process for IPOs..
How to Apply IPO Under Employee Category
- Check the IPO prospectus for employee category availability and eligibility.
- Fill IPO application selecting the “Employee Category” option.
- Submit application within subscription period using the ASBA facility or UPI, or through designated banking channels.
- Await separate allotment results for employees post-subscription. Once the allotment results announced, employees can easily verify their refund status after IPO allotment online.
Important Points
- Employee shares usually have no lock-in period, similar to retail investors. For further details on this, refer to our overview of the lock-in period for IPO shares.
- Employees cannot apply under both employee and retail categories simultaneously for the same IPO.
- Family members of employees are not eligible under this category.
Real-World Example
In the recent LG Electronics IPO, 5% of the post-issue shares reserved for employees and offered at a discount, enhancing participation and allotment prospects within the company.
Conclusion: – The IPO employee category offers company employees a unique opportunity to invest in their firm’s public listing at favorable terms. Understanding eligibility and benefits can help employees maximize this advantage for wealth creation while supporting the company’s growth journey.
