ESOPs are the preferred way for companies including startups to attract and retain talent. Implementing an effective ESOP not only foster a sense of ownership and loyalty among employees but also aligns their interests with the company’s long-term growth objectives. As such, understanding the intricate process involved in issuing employee stock options in India is imperative for both employers and employees alike. Whilst there are a lot of literary pieces on issuance of ESOPs, we hereby detail the step-wise process for issuing employee stock options in India.
STEP WISE PROCESSES FOR ISSUING EMPLOYEE STOCK OPTIONS
Nomination & Remuneration Committee, if applicable, shall identify the employees and Directors eligible for ESOPs and shall determine the criteria for eligibility for ESOPs . { Approval of NRC committee is required. Board might also authorize NRC to act as the Compensation Committee for the purpose of ESOPs.}
Prepare the draft scheme of Employee Stock Option Plan and take valuation report issued by a CA or SEBI registered merchant banker. [Note: Companies-Private and Unlisted Companies shall comply the 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 there under].
Prepare the notice for the Board Meeting along with the draft resolution to be passed in the Board Meeting and send draft notice and agenda to each Director at least 7 days advance to each director.
Notify the Stock Exchange(s) two days before a Board meeting concerning ESOP schemes for Listed Companies, excluding the day of notification and the meeting.
Pass a Board resolution authorizing the issuance of shares through ESOP, approving the scheme’s draft, and accepting the valuation report determining share prices.
Schedule an Extraordinary General Meeting to approve ESOP issuance by passing a Special Resolution, specifying time, date, and venue.
Inform the Stock Exchange(s) of the Board meeting outcomes within 30 minutes of its conclusion. Employees can buy shares at a predetermined price after the vesting period, typically lower than the Fair Market Value (FMV), with the difference taxed as perquisites.
Distribute draft Board Meeting minutes to all Directors within fifteen days, and file Form MGT-14 with the Registrar of Companies for Board meeting resolutions.
For Listed Companies, obtain a certificate from a Merchant Banker confirming ESOP scheme compliance with SEBI guidelines.
Issue notice of the General Meeting, including an explanatory statement, to Directors, Auditors, Shareholders, and Secretarial Auditors at least twenty-one days in advance by post or electronic means. If sent by post, the notice should be sent 48 hours earlier, excluding the day of sending and the meeting day (e.g., 21 +2+2=25 days in advance).
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Visit our publication page for detailed articles on various aspects of Employee Stock Ownership Plans (ESOP). Here are some of the most informative and insightful articles we have published: Advantages of Employee Stock Option Plan, Ways to issue shares under ESOP, FAQs on ESOP, Legal Compliance and Regulatory Framework for ESOPs in India
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