An employee quota is a portion of an IPO reserved for the company’s own employees. It lets staff buy shares in the company they work for, and it is often offered at a discount to the final issue price, which the offer document must state clearly. The reservation is limited in size, usually a small percentage of the issue, and individual employees can apply only up to a maximum amount set by the rules, commonly Rs 5 lakh, in addition to the retail limits that apply to other categories. Only eligible employees and directors, as defined in the offer document, can apply in this category, and they must use their own PAN and demat account. If the employee portion is not fully subscribed, the unsubscribed part can be moved to other categories. Employees who apply here are not locked in by the quota itself, but they may be subject to the company’s internal trading rules. For other investors, the discounted employee price does not change the price they pay, but a large employee reservation can slightly reduce the shares available to the public.
Example: A company reserves 2 lakh shares for employees at a Rs 10 discount to the issue price of Rs 200. An eligible employee can apply in the employee category at Rs 190 per share, up to the allowed maximum.