Employee Stock Option Plan (ESOP) : The Finer

ARTICLE
Nuances
An Employee Stock Option Plan (ESOP) is an employee benefit plan that gives workers ownership
interest in the company in the form of shares or stock of the company. One thing we should keep in
mind that it is an option and it is not an obligation.

the specified number of shares of the Company at pre-

determined price. Generally, the duration of vesting
period is one year from the date of issue/grant of
options.

MEANING OF THE SPECIFIC TERMS USED

Option means: Means the option given to an employee
that gives such an employee a right to purchase or
CS Ashwani Singh Bisht, ACS subscribe at a future date, the shares offered by the
Company Secretary & Compliance Officer company, directly or indirectly, at a pre-determined
Bartronics India Limited price.
Madhapur, Hyderabad
ashwanisingh900@gmail.com Employee Stock Option: Pursuant to clause (b) of Sub
Section (1) of Section 62 of Companies Act, 2013, the
Company can offer shares through employee stock
option to their employees if shareholders approve
INTRODUCTION

E
such scheme by way of passing special resolution
subject to the conditions specified under Rule 12,
mployee Stock option plan or Employee of Companies (Share Capital and Debentures)
Stock Ownership Plan (ESOP) is an employee Rules, 2014.
benefit scheme that enables employees to
own shares in the company. These shares However, a Specified IFSC Public Company can offer
are purchased by employees at price shares through employee stock option to their employees
below market price, or in other words, a discounted through ordinary resolution.
price.
Option Grantee: It means an employee having a right
Thus, an Employee Stock Option Plan (ESOP) is an but not an obligation to exercise an option in pursuance
employee benefit plan that gives workers ownership of an ESOS. Regulation 2(1) (aa) of SEBI (Share Based
interest in the company in the form of shares or stock Employee Benefits & Sweat Equity) Regulations,
of the company. One thing we should keep in mind that 2021.
it is an option and it is not an obligation. If employee is
willing to take such an option, he/she may take it and Meaning of Vesting Period: The ESOP vesting period
vice versa. is the time frame between when employees get their
ESOPs and when they are able to exercise any attached
Such plans are given to existing employees as reward rights to options or shares. The employees are only able
based on tenure or on the basis of their performance. to obtain these shares once the ESOP vesting term has
The purpose of providing ESOP is to make the completed.
employee more committed towards the company and
it also helps to retain employees. In other words, ESOP Exercise period: It means the time period which starts
motivates the employees to be committed towards the after the completion of vesting period within which an
company for a long term and also take ownership of the employee can exercise his/her right to apply for shares
company. against the vested options in pursuance of the scheme of
ESOP approved by the shareholders in general meeting by
Eligible employees are required to complete a specified way of Special Resolution.
period with the company, as mentioned in the scheme
of ESOP to claim the benefit of the ESOP. This period Exercise price: Means the price payable by an employee
is called vesting period. After the completion of the for exercising the options granted in pursuance of the
vesting period the employees become eligible to purchase scheme of ESOP.

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ARTICLE Employee Stock Option Plan (ESOP) : The Finer Nuances

FAQs (FMV). As a result, the difference between the FMV and

the exercise price of the share is considered a perquisite
Q. What is an ESOP? in the employee’s hands and taxed at his income tax
A. Thus, we can say that ‘ESOP’ stands for ‘Employee slab rate. However, in the case of new businesses, the
Stock Option Plan’ which is a kind of employee benefit government has softened the tax implications of ESOPs.
plan that gives employees the right to purchase shares
of their employer company at a pre-determined price Employees at the start-up would not have to pay the tax
after a certain time period. on the perk in the year in which they exercise the ESOP.

Q. Does the ESOP supplement the salary of an TDS on ESOPs would be delayed until the sooner of the
employee? following dates:
A. From the point view of monetary benefits, we can say i. Five years from the date of the ESOP grant.
that ESOPs are often used to supplement the salaries
of employees. Instead of paying high salary, employees ii. When does the employee sell the ESOP?
may be offered ESOPs, which may generate more iii. Date of departure from the company.
wealth for employees if the Company is growing and
generating good amount of earnings which is over and iv. Tax treatment at the time of selling the shares.
above break-even point.
WHEN THE EMPLOYEE SELLS THE STOCK
Q. Is ESOP risky and having any possibility of
monetary loss? AFTER EXERCISING THE OPTION
A. It may be risky, if an employee accepts ESOPs instead If the employee sells the shares, difference between the
of a higher salary, and the organization where they are selling price and the fair market value (FMV on the date
employed is not growing as per the market standards when option was exercised to acquire shares) is taxable as
or in comparison to its competitors, ESOP may result capital gains.
in monetary loss.
If ESOP shares are sold after 12 months of buying them,
Q. How does exercise price determine for ESOP? it shall be deemed as long-term capital gain. If the shares
A. Companies are free to decide the exercise price, are sold before completion of 12 months from the date of
which may be issued at a discount or premium but the buying them, the income arise shall be deemed as Short-
exercise price determined by the Company shall not term capital gain.
be less than the par value of the shares.
Note: - Taxation of foreign ESOPs in India is also similar,
Q. Does it mandatory for the Company to issue and and would be taxed in India on the perquisites earned
allot only fresh shares under ESOP scheme? from a foreign company.
A. No, it is not mandatory for the company to issue and Q. Whether ESOP may be considered as a part of
allot only fresh shares under ESOP scheme, but it may managerial remuneration if ESOPs are offered to the
choose either option: Directors?
1. If Company is willing to issue fresh shares, it A. If the ESOPs are offered to the Directors it is treated
should adopt direct route to issue and allot shares as perquisite and hence it becomes part of managerial
under the scheme of ESOP. remuneration under section 197 & 198 of the
2. If the Company is willing to channelize its Companies Act, 2013.
existing share only, in such case Company should
adopt Trust route to issue and allot shares under APPLICABILITY OF VARIOUS LAWS TO
the scheme of ESOP. ISSUE SHARES UNDER EMPLOYEE STOCK
Q. How are ESOP taxed in India? OPTION (ESOP)
A. ESOPs have dual tax effects: 1. The Companies Act, 2013 and rules made thereunder.
1. When an employee exercises their rights and 2. SEBI (Share Based Employee Benefits and Sweat
purchases company’s stock. Equity) Regulations, 2021.
2. When the employee sells the stock after
exercising the option. 3. SEBI (Listing Obligations and Disclosure
Requirements) Regulations,2015.
TAX TREATMENT AT THE TIME OF
1. PROVISIONS OF COMPANIES ACT, 2013:-
BUYING THE SHARES Section 62 (1) (b) of Companies Act, 2013 states that
Employees can exercise his option and purchase shares where at any time, a company having a share capital
after the vesting date is over at a pre-determined price, proposes to increase its subscribed capital by the issue
which is usually less than the share’s Fair Market Value of further shares, such shares shall be offered:

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Employee Stock Option Plan (ESOP) : The Finer Nuances

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to employees under a scheme of employees’ stock option, (b) Such purchase of shares shall be made only
subject to special resolution passed by company and through a recognized stock exchange in case the
subject to such conditions as may be prescribed. shares of the company are listed and not by way
of private offers or arrangements;
Such prescribed conditions are mentioned in Rule 12 of
The Companies (Share Capital and Debentures) Rules, (c) Where shares of a company are not listed on a
2014. recognized stock exchange, the valuation at
which shares are to be purchased shall be made
Conditions as per the Rule 12 of The Companies (Share by a registered valuer;
Capital and Debentures) Rules, 2014:
(d) The value of shares to be purchased or subscribed
A company, other than a listed company, shall not offer in the aggregate together with the money
shares to its employees under a scheme of employees’ provided by the company shall not exceed five
stock option (ESOP), unless it complies with the following percent of the aggregate of paid up capital and
requirements, namely: - free reserves of the company.
(1) The issue of Employees Stock Option Scheme has (2) The explanatory statement to be annexed to the notice
been approved by the shareholders of the company by of the general meeting to be convened pursuant to
passing a special resolution. Section 102 shall, in addition to the particulars
mentioned in sub-rule (1) of rule 18, contain the
Explanation: For the purposes of clause (b) of Sub-
following particulars, namely: -
Section (1) of Section 62 and this rule “Employee”
means- (a) The class of employees for whose benefit the
(a) A permanent employee of the company who has scheme is being implemented and money is
been working in India or outside India; or being provided for purchase of or subscription to
shares;
(b) A Director of the company, whether a whole-time
Director or not but excluding an Independent (b) The particulars of the trustee or employees in
Director; or whose favor such shares are to be registered;

(c) An employee as defined in clauses (a) or (b) of (c) The particulars of trust and name, address,
a subsidiary, in India or outside India, or of a occupation and nationality of trustees and their
holding company of the company but does not relationship with the promoters, Directors or Key
include- Managerial Personnel, if any;

(i) An employee who is a promoter or a person (d) The any interest of Key Managerial Personnel,
belonging to the promoter group; or Directors or promoters in such scheme or trust
and effect thereof;
(ii) A Director who either himself or through his
relative or through any-body corporate, directly (e) The detailed particulars of benefits which will
or indirectly, holds more than ten percent of the accrue to the employees from the implementation
outstanding equity shares of the company. of the scheme;
As per Rule 12 of the Company (Share Capital and (f) The details about who would exercise and how
debenture) Rules, 2014, Employees have no right to the voting rights in respect of the shares to be
receive any dividend or to vote or in any manner or enjoy purchased or subscribed under the scheme would
the benefits of a shareholder in respect of option granted be exercised;
to them, till shares are issued on the exercise of the
option. (3) A person shall not be appointed as a trustee to hold
such shares, if he-
Rule 16 of The Companies (Share Capital and
Debentures) Rules, 2014: (a) Is a director, Key Managerial Personnel or
promoter of the company or its holding,
(1) The company shall not make a provision of money subsidiary or associate company or any relative
for the purchase of, or subscription for, shares in the of such Director, Key Managerial Personnel or
company or its holding company, if the purchase of, promoter; or
or the subscription for, the shares by trustees is for the
shares to be held by or for the benefit of the employees (b) Beneficially holds ten percent or more of the
of the company, unless it complies with the following paid-up share capital of the company.
conditions, namely: -
(4) Where the voting rights are not exercised directly
(a) The scheme of provision of money for purchase by the employees in respect of shares to which the
of or subscription for the shares as aforesaid is scheme relates, the Board of Directors shall, inter alia,
approved by the members by passing special disclose in the Board’s report for the relevant financial
resolution in a general meeting; year the following details, namely: -

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ARTICLE Employee Stock Option Plan (ESOP) : The Finer Nuances

(a) The names of the employees who have not (ii) A Director of the company, whether a whole-time
exercised the voting rights directly; Director or not, including a Non-Executive Director
who is not a promoter or member of the promoter
(b) The reasons for not voting directly; group, but excluding an Independent Director; or
(c) The name of the person who is exercising such (iii) An employee as defined in sub-clauses(i) or (ii), of a
voting rights; group company including subsidiary or its associate
company, in India or outside India, or of a holding
(d) The number of shares held by or in favour of, such
company of the company, but does not include—
employees and the percentage of such shares to
the total paid up share capital of the company; (a) An employee who is a promoter or a person
belonging to the promoter group; or
(e) The date of the general meeting in which such
voting power was exercised; (b) A Director who, either himself or through his
relative or through anybody corporate, directly
(f) The resolutions on which votes have been cast by
or indirectly, holds more than ten percent of the
persons holding such voting power;
outstanding equity shares of the company.
(g) The percentage of such voting power to the total
Note: Employee on probation shall also be eligible for
voting power on each resolution;
ESOP. Employee on 3 years or 4 years contract etc. are
(h) Whether the votes were cast in favour of or also eligible for ESOP if they are on the payroll of the
against the resolution. Company.
Employees/directors who are ineligible for ESOP: The
LISTING REGULATIONS -SEBI (SHARE following employees and Directors shall be ineligible for
BASED EMPLOYEE BENEFIT & SWEAT ESOP:
EQUITY) REGULATIONS, 2021 1. An employee or Director belonging to promoter or
As per regulation 2(1) (J) of SEBI (Share Based Employee promoter group is ineligible to take part in ESOPs.
Benefit & Sweat Equity) Regulations, 2021:
2. Any Director if he/she holds more than 10% of paid-up
“Employee stock option scheme or ESOS means a scheme share capital of the Company individually or together
under which a company grants stock options to its with his relatives or Body Corporate in the company
employees directly or through a trust”. is also ineligible to take part in ESOP.

Thus, it is clear from the above definition that a Listed Exemption for Start-ups: - However, in case of Start-up
Company may implement the scheme of ESOS either Company, as defined in notification number GSR 180(E)
directly or by setting up an irrevocable trust. dated 17th February, 2016, issued by the Department of
Industrial Policy and Promotion, Ministry of Commerce
Provided that if the scheme is to be implemented through and Industry Government of India, the conditions
a trust, the same has to be decided upfront at the time mentioned in (i) and (ii) shall not apply upto five years
of taking approval of the shareholders for setting up the from the date of its incorporation or registration.
scheme.
BENEFITS OF EMPLOYEE STOCK OPTION
Pursuant to the regulation 3(2) of SEBI (Share Based
Employee Benefits & Sweat Equity) Regulations, PLAN (ESOP)
2021, A company may implement several schemes as 1. Helpful to increase Productivity of the Company.
permitted under these regulations through a single
trust. 2. Helpful in attracting fresh talent.
Provided that such single trust shall keep and maintain 3. Employee Retention.
proper books of account, records and documents for each
scheme so as to explain its transactions and to disclose at 4. Helpful to generate the sense of ownership among the
any point of time, the financial position of each scheme employees.
and in particular give a true and fair view of the state of
affairs of each scheme. 5. Strong public image of the Company.

Employees eligible for ESOP: Employee who are eligible 6. Helps to motivate the employees to perform well
for ESOP are as under: against their roles in the Company.

Employee except in relation to issue of sweat equity 7. Employee Stock Option Scheme (ESOP) also helps
shares, means, the organization to maintain long lasting relationship
with the employees.
(i) An employee as designated by the company, who is
exclusively working in India or outside India; or 8. Increases the loyalty of its Employees.

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Employee Stock Option Plan (ESOP) : The Finer Nuances

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9. Offers a sense of job security and satisfaction to the 6. Section 67 provides that a Company may give loan to
Employees. buy its own shares if such shares are for the purpose of
ESOP.
10. Helps in wealth creation for the employees.
7. If trust takes loan from the Company to buy shares
11. Helps to create motivated and committed workforce from the secondary market the loan is repaid from the
for the organization. proceed received by the trust as exercised price paid
by the employees.
12. Special benefit from the point view of Company
Secretaries. 8. As in the shareholding pattern shares acquired
by trust is categorized non promoter non-public
ESOP also provides special benefit to the Secretarial category. Trustees have no power to vote on behalf of
department, if employees of the Company will also be the employees against the shares held by the trust.
its shareholders, there will be no difficulty to meet the
quorum requirements as prescribed for AGM & EGM FEMA ASPECTS OF ESOP
under the Companies Act, 2013.
If a Company grants ESOPs to its foreign employees, it
WAYS TO ISSUE SHARES UNDER ESOP has to comply the Foreign Exchange & Management Act
1999.
There are two ways to issue and allot shares to the
employees under ESOP they are as follows: In the context of FEMA regulations, investment received
from the foreign employee is treated as FDI;
1. Direct Route and 2. Trust Route And any investment made by the foreign employee shall be
1. Direct Route: It is a route where the Company issues subject to the entry routes (Automatic or Approval route),
stock options under ESOP to the eligible employees Sectoral Cap, investment limits, pricing guidelines.
and such employees after the vesting period is over In case of approval route, approval from RBI is mandatory
directly exercise their options and Company allots prior to the grant of such ESOP to the foreign employees.
shares against options exercised by the employees. But for automatic route there is no approval required.
Here in this route mainly fresh issue of shares is done
thus employee becomes shareholder of the Company. Note: If Indian holding company issues ESOP to
employees of its foreign subsidiary, who are working in the
2. Trust Route: Under this route a separate entity is land sharing border countries such as Pakistan, Bhutan,
created, which is called employee welfare trust and China, Taiwan, Nepal, Macao, Hong Kong, Myanmar etc
this trust keeps shares in a fiduciary position for the approval from the Reserve Bank of India is mandatory.
the employees and whenever employee exercises his
option, trust transfers shares to the concern employee Forms to be filed:
who has exercised his options. In case if FEMA regulations trigger there shall be filing
Note: If Company is willing to shift or change the ESOP in two ways:
routes from direct to Trust or Trust to direct route it can 1. At the time of granting of options issuer needs to file
be done. Form ESOP Reporting Form with RBI.
Points to keep in mind if Trust Route is adopted: 2. And at the time of issue and allotment of Capital
1. Under trust route existing shares and fresh issue of Instruments the Form FCGPR shall be filed.
shares both options may be taken. ISSUE OF ESOP
2. If trust involves secondary market acquisition, Before proceeding for Employee Stock Option Plan
in such case acquisition limit for each financial (ESOP) one aspect must be kept in mind, if a company
year is 2% of paid-up equity capital. And overall plans to issue shares under the scheme of Employee
limit is 5% of paid-up equity capital at any point Stock Option Plan (ESOP), it should ensure that the
time. Articles of Association (AoA) authorizes for issuance of
3. If trust acquire shares directly from the Company, shares through ESOP. If the Articles does not authorize,
there is no limit of acquisition. the company should first hold an extraordinary general
meeting to alter its Articles to include the provisions
4. In the shareholding pattern shares issued to the of issuance of shares through ESOP and then proceed
trust shall be shown under non promoter non-public with holding the Board Meeting for the passing of the
category. resolution and getting the shareholder’s approval for
ESOP Scheme.
5. If scheme is over or completed and trust has still
some shares with it, as per the latest provisions such  Section 62(1)(b) of the Companies Act, 2013 and Rule
extra shares may be utilized for another scheme but 12 of Companies (Share Capital and Debentures)
after taking approval from shareholders Or sell the Rules, 2014 govern the issuance of Employee Stock
extra shares and utilize the money received as per the Option Plan (ESOP) in case of Private and Unlisted
options available in the trust deed. Companies.

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ARTICLE Employee Stock Option Plan (ESOP) : The Finer Nuances

In case of Listed Companies compliance requirements as

specified under the Companies Act, 2013 and SEBI (Share
Based Employee Benefit & Sweat Equity) Regulations,
2021, SEBI(LODR) Regulations, 2015 and rules made Employees can exercise his option and
thereunder must be followed. purchase shares after the vesting date is
over at a pre-determined price, which is
BRIEF SNAPSHOT OF THE FLOW OF ESOP
usually less than the share’s Fair Market
Value (FMV). As a result, the difference
Preparation, approval and between the FMV and the exercise price of
implementation of the scheme
the share is considered a perquisite in the
of ESOP.
employee’s hands and taxed at his income
tax slab rate.

Pass Special Resolution in EGM.

THE PROCESS FOR ISSUING EMPLOYEE
Listed Company shall take STOCK OPTIONS BY A COMPANY IS AS
Certificate from Merchant Banker
FOLLOWS
that scheme of ESOP complies .
 Nomination & Remuneration Committee (if
applicable), shall identify the employees and Directors
eligible for ESOPs and shall determine the criteria
for eligibility for ESOPs. (The approval of NRC
committee is required. The Board may also authorize
Grant and issue of options to the
NRC to act as the Compensation Committee for the
eligible employees. purpose of ESOPs.)
 Prepare the draft scheme of Employee Stock Option
Plan (ESOP) and take valuation report issued by a
Chartered Accountant or SEBI registered merchant
banker.
Completion of vesting period by
[Private and Unlisted Companies shall comply the
the employees. provisions of the Companies Act, 2013, and Listed
Companies shall comply, Companies Act, 2013 +
SEBI (Share Based Employee Benefit & Sweat Equity)
Regulations, 2021, SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015 and
Rules made thereunder.]
Exercise the option and
convert the option into  Prepare the notice for the Board Meeting along with
shares of the company the draft resolution to be passed in the Board Meeting
by the eligible . and send draft notice and agenda to each Director at
employees. least 7 days in advance to each director.
 In case of Listed Company, give intimation to the
Stock Exchange(s) at least two days in advance about
the Board meeting in which scheme of ESOP and
Issue and allotment of shares to other details related to the ESOP shall be discussed.
the employees who exercised (excluding the day of intimation and day of meeting).
their options.
 Pass the Board resolution for the issuance of shares
through ESOP, approve the draft scheme and
valuation report to determine the price of shares to be
issued pursuant to ESOP.
Yearly Certificate from Secretarial  Fix time, date and venue to convene the Extra
Auditor that Company is Ordinary General Meeting to pass Special Resolution
administering its ESOPs as per the for issuing ESOP.
guidelines of SEBI.
 Give outcome of Board meeting to Stock Exchange(s)
within 30 minutes from the conclusion of the meeting.

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 Send the draft minutes of the Board Meeting to all the  Convene General Meeting and pass Special
Directors within fifteen days of its conclusion and file Resolution for issuance of shares under the
Form MGT-14 with the Registrar of Companies for Employee Stock Option Plan (ESOP). However,
the resolutions passed in Board meeting. a Specified IFSC Public Company can offer
shares through employee stock option to their
 In case of Listed Company, take certificate from employees through ordinary resolution.
Merchant Banker that scheme of ESOP complies the
SEBI guidelines.  Pass the separate Special Resolution if any
employee holds upto 1% of paid-up Share Capital
 Send notice of the General Meeting , the explanatory of the Company in any financial year and the
statement to be annexed to the notice of the General Company still wants to give him/her Employee
Meeting to be convened pursuant to Section 102 Stock Option.
shall, in addition to the particulars mentioned in sub-
rule (1) of rule 18, contain the following particulars,  Give outcome of EGM/AGM to the Stock
namely; to all the directors, auditors, shareholders Exchange(s) within 12 hours from the conclusion
and secretarial auditors of the company at least of meeting.
twenty-one days in advance from the date of meeting
by post or electronic means, if notice is sent by post  Disclose voting results with scrutinizer’s report
in such case notice shall be sent still 48 hours earlier to Stock Exchange(s) within 48 hours from the
excluding the day of sending notice and day of meeting conclusion of the meeting.
(e.g., 21 +2+2=25 days in advance).
 In case of Listed Company apply for the In-
Principle approval of the Stock Exchange(s) for
MAIN CONTENT/DISCLOSURE OF the proposed issue of shares under the scheme of
EXPLANATORY STATEMENT U/S 102 OF employee stock option.
THE COMPANIES ACT, 2013, AND RULES  File Form MGT-14 with the Registrar of
MADE THEREUNDER Companies within thirty days of passing the
special resolution along with the necessary
1. The total number of stock options to be granted; documents.
2. Identified classes of employees entitled to participate  Give at least two days advance intimation to
in the Employee Stock Option Scheme; the Stock Exchange(s) (Excluding the day of
3. The appraisal process for determining the eligibility of intimation and the day of meeting in case of
employees to the Employee Stock Option Scheme; Listed entity).

4. The requirements of vesting and period of vesting;  Convene Board Meeting to grant options to the
eligible employees and pass Board Resolution.
5. Maximum period within which the options shall be
vested; Note: A company may authorize its Nomination &
Remuneration Committee to act as compensation
6. Exercise price or the formula for arriving at the same; committee for the purpose of ESOP.
7. Exercise period and process of exercise;
 Give outcome of Board Meeting to the Stock
8. Lock-in period, if any; Exchange(s) within 30 minutes from the
conclusion of the meeting.
9. The maximum number of options to be granted per
employee and in aggregate;  Send options to the employees, directors and
officers of the company for purchasing shares
10. Method which the company shall use to value its under ESOP.
options;(Listed Company shall comply pricing
requirements as prescribed in SEBI (Share Based  Maintain a ‘Register of Employee Stock Options’
Employee Benefit & Sweat Equity) Regulations, in Form No.SH-6 and enter the particulars of
2021; the ESOP granted to the employees, Directors or
officers of the company.
11. Conditions under which option vested in employees
may lapse e.g., in case of termination of employment
for misconduct; COMPLETION OF VESTING PERIOD AND
EXERCISING OF OPTIONS
12. The specified time period within which the employee
shall exercise the vested options in the event of a  After vesting period when eligible employees
proposed termination of employment or resignation exercise their options; Company is required to
of employee; and a statement to the effect that the convene Board Meeting to allot shares under the
company shall comply with the applicable accounting ESOP scheme to the employees who exercised the
standards. option.

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ARTICLE Employee Stock Option Plan (ESOP) : The Finer Nuances

 For convening Board Meeting for allotment, if Listed KEY POINTS TO KEEP IN MIND WHILE
Company give at least two days advance intimation to EXERCISING OF OPTIONS
the Stock Exchange(s) (Excluding the day of intimation
and the day of meeting).  If an eligible employee exercises the option, it shall not
 Convene Board Meeting, authorize allotment of shares be considered as trading.
under ESOP and allot shares to eligible employees  Sale of shares acquired pursuant to exercising
who exercised the options. of ESOP, will be considered as open market
 Give outcome of Board Meeting to the Stock trade.
Exchange(s) within 30 minutes from the conclusion of
 Designated persons can only sell their shares acquired
the Meeting.
pursuant to exercising the ESOP, if they have not
 Company now is required to apply for Listing acquired the Company’s shares (Except ESOP
Approval of Stock Exchange(s) to list the shares issued shares) prior to six months from the date of such
under the ESOP. selling.
Note: Here one thing is necessary to keep in mind that  Designated persons cannot sell their shares when
in case of ESOP Listing Approval is Listing cum Trading trading window is closed.
Approval and no need to apply separately for Trading
Approval. Note: If a Listed issuer issues and allots its shares
to the eligible employees through ESOP and the
 File Form MGT-14 and PAS-3 with the Registrar of scheme of ESOP is executed through a trust where
Companies within 30 days from the date of Board acquisition of shares from secondary market is
Resolution. involved, Company may acquire shares only upto
the extent of 2% of its paid-up capital in a financial
 If there is no Lock-in applicable for ESOP, employees
year.
who exercised their options are free to trade their
shares in market. Pursuant to the regulation 3(11) of SEBI (Share Based
 Listed Company requires to take Certificate from Employee Benefit & Sweat Equity) Regulations, 2021:
Secretarial Auditor that Company is administering its The total number of shares under secondary acquisition
Scheme of ESOPs as per the SEBI guidelines. held by the trust shall at no point of time exceed the

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below mentioned limits as a percentage of the paid-  Conducting due diligence;
up equity capital of the company as at the end of the
financial year immediately prior to the year in which the  Preparation of scheme of employee stock option plan
shareholders’ approval is obtained for such secondary (ESOP);
acquisition:  Providing guidance to the Board of Directors
regarding various legal aspects of issuing employee
Sl. stock option plans (ESOP);
Particulars Limit
No
 Preparing and maintaining various secretarial
A For the schemes enumerated in Part A, Part 5% records relating to ESOP, e.g. ESOP Scheme,
B or Part C of Chapter III of these regulations ESOP Register, minutes of Board and Committee
B For the schemes enumerated in Part D or 2% etc;
Part E of Chapter III of these regulations
 Preparation and filing of various e-forms with the
C For all the schemes in aggregate 5% Registrar of Companies;

SHARE BASED EMPLOYEE BENEFIT  Preparation of application to get in-principle approval,

SCHEMES UNDER SEBI (SHARE BASED listing, trading approval of Stock Exchange(s) etc.
EMPLOYEE BENEFIT SCHEME AND Thus, the Company Secretary plays a vital role in the
SWEAT EQUITY) REGULATIONS, 2021 issue, implementation, allotment and monitoring of
ESOP Scheme.
1. Employee Stock Option Plan (ESOP)
DISCLOSURE REQUIREMENTS IN THE
2. Employee Stock Purchase Scheme (ESPS)
BOARD REPORT
3. Stock Appreciation Rights Scheme (SAR)
 Total number of options granted under the scheme of
4. General Employee Benefit Scheme (GEBS) ESOPs.
5. Restricted Stock Units Scheme (RUS)  Details of vesting, exercise price, route of ESOPs,
source of shares (Fresh issue or acquisition from
6. Retirement Benefit Scheme (RBS) secondary market).
RESTRICTIONS IF COMPANY DOES  Material changes in the Scheme if any during the year.
NOT COMPLY (MINIMUM PUBLIC
 Disclosure in terms of Accounting Standards.
SHAREHOLDING (MPS) CRITERIA/
REQUIREMENTS  Diluted EPS on issue of ESOP shares.
If any Listed Company does not comply minimum  Method to compute intrinsic and fair value of shares.
public shareholding (MPS) criteria as prescribed under
Securities (Contract and Regulation) Act, 1956 and CONCLUSION
ESOP is proposed as one of the ways to reduce promoters
holding, in such case allotment of shares under ESOP We have reached the end and after a lot of research and
pursuant to exercise of options by the eligible employees analysis on the topic of Employee Stock Option Plan
shall be limited to 2% of paid-up share capital of the (ESOP), it can now be said that the one of the best ways
Listed entity this restriction is pursuant to SEBI circular to reward employees, enhance profitability, generate
dated 3rd February, 2023:- SEBI circular No. SEBI/ the spirit of ownership and make employees more loyal
HO/CFD/PoD2/P/CIR/2023/18, dated 03, February, towards the Company is issue and allotment of shares to
2023. the eligible employees under the Employee Stock Option
Plan (ESOP).
ROLE OF THE COMPANY SECRETARIES Thus, it becomes a way to attract the best talent for the
WITH RESPECT TO EMPLOYEE STOCK Company and promises stability or stable career to the
OPTION PLAN (ESOP) employees.

The role of Company Secretaries for issue, REFERENCES:

implementation allotment and monitoring the successful
ESOP Scheme is not only limited to convening Secondary data was taken from the following sources:
meetings of Board, Committees and the Shareholders, i. https://www.mca.gov.in/
but also in:
ii. https://www.rbi.org.in/
 The determination of criteria of employees and
members of Board of Directors eligible for employee iii. https://www.sebi.gov.in/
stock option;  CS

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