EMPLOYEE STOCK

OPTION PLANS

?17000 cr.
• ESOPS UNDER COMPANIES ACT 2013,
• FOR PRIVATE LIMITED COMPANIES.
• IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT,
2013 AND COMPANIES (SHARE CAPITAL AND DEBENTURES) RULES,
2014.
• ❌ IN ACCORDANCE WITH SECURITIES AND EXCHANGE BOARD OF
INDIA EMPLOYEE STOCK OPTION SCHEME GUIDELINES – LISTED
COMPANIES.
• PVT LTD AND LTD COMPANIES.
• SECTION 2(37) OF THE COMPANIES ACT, 2013 DEFINES EMPLOYEES
STOCK OPTION AS THE OPTION GIVEN TO THE DIRECTORS,
EMPLOYEES OR OFFICERS OF THE COMPANY OR OF ITS HOLDING OR
SUBSIDIARY COMPANY, THE RIGHT TO PURCHASE OR BENEFIT OR
SUBSCRIBE FOR THE SHARES OF THE COMPANY AT A
PREDETERMINED PRICE ON A FUTURE DATE.
• RIGHT TO PURCHASE ✅
• ACCORDING TO RULE 12(1) OF COMPANIES (SHARE CAPITAL AND
DEBENTURES) RULES, 2014 : CAN BE ISSUED TO THE FOLLOWINGS
1. PERMANENT EMPLOYEE ( IN AND OUT)
2. ✅ DIRECTOR ❌ INDEPENDENT DIRECTOR ❌
3. (1) (2) BELONGING TO SUBSIDIARY OR THE HOLDING COMPANY.
• CANNOT ISSUE ESOPS:
1. PROMOTER
2. PROMOTER GROUP
3. DIRECTOR, MORE THAN TEN PER CENT OF THE
EQUITY (ANYWAY).
• ❌ PROMOTERS, CONSULTANTS, ADVISORS, FREELANCERS,
AND CONTRACTUAL EMPLOYEES
1. COMPANY GRANTS
2. VESTING
3. EXERCISE
4. EXIT
• FIRST CREATE AN OPTION POOL. 👈
1. FOUNDER’S STOCK : 10 TO 15%
2. NEW STOCK
• GRANT 👈
• VESTING : EMPLOYEES “EARN” THEIR STOCK OVER TIME. 👈
1. TIME-BASED
2. ACHIEVEMENT BASED
(AS PER THE GUIDELINES OF ESOPS UNDER COMPANIES ACT, A
MINIMUM ONE-YEAR LOCK-IN PERIOD MUST BE IN PLACE BETWEEN
THE GRANT OF THE ESOP AND THE VESTING OF ITS OPTION)
• VESTING CLIFF 👈
WHEN THE STOCKS “ACCRUE” TO THE EMPLOYEE ❌
EMPLOYEE CANNOT EXERCISE IT.
VEST AS PER THE VESTING SCHEDULE
NO MANDATORY GUIDELINES FOR A VESTING CLIFF FOR
ESOPS UNDER COMPANIES ACT.
A FOUR-YEAR VESTING WITH A ONE-YEAR CLIFF *
COMMON
• VESTING SCHEDULE 👈 MOSTLY STAGGERED
STRIKE PRICE IS THE EXERCISE PRICE
• EXPIRATION DATE 👈 PURCHASE THE SHARES
ALLOTTED TO THEM WITHIN A SPECIFIC PERIOD.
• EXIT 👈 EXIT HAPPENS WHEN THE EMPLOYEE
DECIDES TO SELL HIS SHARES
1. CLAUSE *
RULE 12 OF THE COMPANIES (SHARE CAPITAL AND DEBENTURE)
RULES, 2014
• SHAREHOLDERS SHALL APPROVE , BY PASSING A SEPARATE
RESOLUTION
• OPTIONS GRANTED CANNOT BE TRANSFERRED, PLEDGED,
HYPOTHECATED OR MORTGAGED
• MODIFICATION OF THE SCHEME SHOULD NOT BE DETRIMENTAL TO
THE EXISTING OPTION HOLDERS.
• MINIMUM LOCK IN
• NOT BE ELIGIBLE FOR DIVIDENDS OR VOTING RIGHTS UNTIL THEY
EXERCISE
• IN CASE OF PERMANENT INCAPACITATION DURING
EMPLOYMENT, ALL THE OPTIONS SHALL IMMEDIATELY VEST
ON THE DATE OF SUCH INCAPACITATION.
• MAINTAIN A REGISTER, AT THE COMPANY’S REGISTERED
OFFICE.
• BOARD’S REPORT UNDER SECTION 134 OF THE ACT MANDATES
CERTAIN DISCLOSURES LIKE NUMBER OF OPTIONS GRANTED,
VESTED, EXERCISED AND LAPSED, EXERCISE PRICE , TOTAL
NUMBER OF OPTIONS IN FORCE IN THE BOARD REPORT.
 LISTED COMPANY
• IN ADDITION TO REQUIREMENTS FOR ESOP UNDER COMPANIES ACT,
2013, LISTED COMPANIES ARE REQUIRED TO FOLLOW THE SEBI
(SHARE BASED EMPLOYEES BENEFITS) REGULATIONS, 2014. THE
SUMMARY OF THESE REQUIREMENTS IS AS FOLLOWS:
1. IMPLEMENTED DIRECTLY BY THE COMPANY OR A TRUST
2. SHALL TRANSFER THE OPTION POOL TO THE TRUST
3. HAVE A COMPENSATION COMMITTEE. ✅ DETERMINE THE
ELIGIBILITY OF THE EMPLOYEES AND THE TERMS AND
CONDITIONS