{"id":4126,"date":"2020-02-26T12:06:14","date_gmt":"2020-02-26T12:06:14","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=4126"},"modified":"2022-11-16T15:54:04","modified_gmt":"2022-11-16T10:24:04","slug":"shares-issue-through-employee-stock-option-plan","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/shares-issue-through-employee-stock-option-plan\/","title":{"rendered":"Process for Shares Issue through Employee Stock Option Plan"},"content":{"rendered":"\n<p class=\"has-drop-cap\">At a growing stage of the Companies, Employee Stock Option Plan (ESOP) plays a vital role to attract and preserve valued employees for long term altitudes. <strong><em>If a company proposes to increase its subscribed capital by issuance of shares, such shares issued will be offered to Employee\u2019s under the ESOP scheme, through a resolution passed by Company<\/em><\/strong>. For <a href=\"https:\/\/corpbiz.io\/public-limited-company-registration\"><strong>Public Limited Company<\/strong><\/a>, Private Company, Listed and Unlisted Companies Process for Issue of Shares through ESOP are prescribed, for the benefit of Employees as well as Company. In this article the process followed for the Issue of Shares through ESOP will be discussed.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/shares-issue-through-employee-stock-option-plan\/#What_is_the_Eligibility_Criterion_for_the_Issue_of_Shares_through_ESOP\" >What is the Eligibility Criterion for the Issue of Shares\nthrough ESOP?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/shares-issue-through-employee-stock-option-plan\/#What_is_the_Life_Cycle_of_ESOP_for_the_Issue_of_Shares_through_ESOP\" >What\nis the Life Cycle of ESOP for the Issue of Shares through ESOP?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/shares-issue-through-employee-stock-option-plan\/#What_is_the_Process_of_Issue_of_Shares_through_ESOP\" >What\nis the Process of Issue of Shares through ESOP?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/shares-issue-through-employee-stock-option-plan\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Eligibility_Criterion_for_the_Issue_of_Shares_through_ESOP\"><\/span>What is the Eligibility Criterion for the Issue of Shares\nthrough ESOP?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The main aim to grant ESOP to the Employees is\nto keep <strong><em>them motivated and facilitate them to be part of the development of the\nCompany<\/em><\/strong>. There will be Selection Process through which the desired\nEmployees will be selected for the availing the Issue of Shares through ESOP.<\/p>\n\n\n\n<p><strong><em>The Explanation to Rule 12 (1) of Companies\n(Share Capital and Debentures) Rules, 2014 states for the eligible employees\nwho can Issue of Shares through ESOP:<\/em><\/strong><\/p>\n\n\n\n<ul><li>A permanent employee of the Company who is working in India or outside India<\/li><li>A Director of the Company may be whole-time or part-time but not an Independent Director<\/li><\/ul>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"593\" height=\"145\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-28.png\" alt=\"Eligibility Criterion for the Issue of Shares through ESOP\" class=\"wp-image-4127\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-28.png 593w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-28-300x73.png 300w\" sizes=\"(max-width: 593px) 100vw, 593px\" \/><\/figure><\/div>\n\n\n\n<p><strong><em>Employees\nwho are not eligible for the Issue of Shares through the ESOP scheme are as\nfollows: <\/em><\/strong><\/p>\n\n\n\n<ul><li>An employee who\nis a promoter<\/li><li>A Director who\nholds 10% of the outstanding equity shares of the Company<\/li><li>A Director who\nis a Promoter of the Company<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Life_Cycle_of_ESOP_for_the_Issue_of_Shares_through_ESOP\"><\/span>What\nis the Life Cycle of ESOP for the Issue of Shares through ESOP?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>&nbsp;<strong><em>There are 3 terms which are the main focus while Issue of Shares through ESOP to the employees. These terms are said to be the Life cycle of the ESOP:<\/em><\/strong><\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"583\" height=\"235\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-29.png\" alt=\"Life Cycle of ESOP\" class=\"wp-image-4129\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-29.png 583w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-29-300x121.png 300w\" sizes=\"(max-width: 583px) 100vw, 583px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Create<\/h3>\n\n\n\n<p>An\nESOP Policy should be framed for the Employees keeping in concern the\nrequirements of the Employees and their progress.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Implement<\/h3>\n\n\n\n<p>For\nthe implementation of ESOP approval of the Board of Directors and the\nshareholders of the Company are required.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Grant<\/h3>\n\n\n\n<p>Grant\nmeans issue of stocks to the Employee. The grant also includes the commitment\nof the employer made by informing the Employee to be eligible for ESOP.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Vest<\/h3>\n\n\n\n<p>The\nright of employees to apply for share is granted to them in Vesting.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Exercise<\/h3>\n\n\n\n<p>The\nExercise Period is post vesting, where the Employee can exercise the option of\nbuying the shares. The Exercise Price is the per-established price at which the\nEmployee will buy the share. <\/p>\n\n\n\n<p><strong><em>The above Life Cycle is the essence of every ESOP. The different Companies where procedures for ESOP have been implemented are:<\/em><\/strong><\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"580\" height=\"352\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-30.png\" alt=\"Life Cycle is the essence of every ESOP\" class=\"wp-image-4130\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-30.png 580w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-30-300x182.png 300w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><figcaption>Life Cycle is the essence of every ESOP<\/figcaption><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Process_of_Issue_of_Shares_through_ESOP\"><\/span>What\nis the Process of Issue of Shares through ESOP?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>The process of Issue of Shares through ESOP for different types of Companies is as follows:<\/em><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Process\nof Issue of Shares through ESOP to Private Limited Company<\/h3>\n\n\n\n<p><strong><em>Section 61 of the Companies Act, 2013<sup><a class=\"text-primary\" href=\"https:\/\/en.wikipedia.org\/wiki\/Companies_Act_2013\"><strong>[1]<\/strong><\/a><\/sup>, enables a Private Limited Company to Issue of<\/em><\/strong><em> <strong>Shares through ESOP<\/strong> to the employees<\/em>. The ESOP scheme should be there written in the Articles of Association (AoA). If in case the AOA is silent about the ESOP scheme then the AOA should be amended accordingly. On the other hand, if the Memorandum of Articles (MoA) does not have the desired share capital for the Scheme, then the MoA should be amended accordingly. <\/p>\n\n\n\n<p><strong><em>The\nBoard of Directors shall hold a meeting and decide on the following matters:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Drafting on new MoA and AoA<\/li><li>Drafting of ESOP Scheme<\/li><li>Drafting of the Resolution to be passed by the Board of Directors<\/li><li>An Extraordinary General Meeting (EGM) should be held<\/li><li>Drafting of the Resolution passed in the EGM<\/li><li>Drafting of notice passed in EGM<\/li><li>Preparing the minutes of the EGM and Board Meeting<\/li><li>Discussion on following points in the Meeting<\/li><\/ul>\n\n\n\n<ol><li>Pass the Resolution for amendment of MoA and AoA<\/li><li>Obtaining shareholders approval for ESOP scheme<\/li><\/ol>\n\n\n\n<ul><li>The Registrar of Companies filing should be done in 30 days.<\/li><li>Identify the Employees eligible for the ESOP Scheme.<\/li><li>Look for the vesting period of the Scheme<\/li><li>Stamp Duty should be paid on the Issue of Shares <\/li><\/ul>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"580\" height=\"251\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-31.png\" alt=\"Extraordinary General Meeting\" class=\"wp-image-4131\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-31.png 580w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/image-31-300x130.png 300w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Process of Issue of Shares through ESOP to Subsidiary Company and Holding Company<\/h3>\n\n\n\n<p><em><strong>The Issue of Shares through ESOP in the case of foreign Holding companies is expressly guided with the FEMA and the Companies Act, 2013:<\/strong><\/em><\/p>\n\n\n\n<ul><li>The person must\nbe the Employee of the Company<\/li><li>General\npermission to the person residing in India<\/li><li>The shares\nthrough ESOP are offered globally by the Company<\/li><li>Register of\ndirector should be maintained<\/li><li>The shares\nshould be issued according to the prescribed rules and regulations.<\/li><\/ul>\n\n\n\n<p>The rest of the procedure is similar to that of the <a href=\"https:\/\/corpbiz.io\/company-registration\"><strong>Private Limited Company<\/strong><\/a><strong>.<\/strong> <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/appointment-of-nominee-director-a-complete-overview\/\"> \nAppointment of Nominee Director: A Complete Overview<\/a><\/mark><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Process\nof Issue of Shares through ESOP to Star-Ups and Unlisted Company<\/h3>\n\n\n\n<p><em>The following process is followed while Issue of Shares through ESOP to Start-Ups and Unlisted Company:<\/em><\/p>\n\n\n\n<ul><li>Checking of the\nvaluation of the Company<\/li><li>Drafting of the\nESOP Scheme<\/li><li>Hold a Board\nMeeting <\/li><li>Passing of\nResolution in the Board Meeting<\/li><li>Set up a General\nMeeting for the approval of Scheme by shareholders<\/li><li>Approval of the\nplan should be done through a Special Resolution<\/li><\/ul>\n\n\n\n<p><strong><em>Some\ndisclosures are to be made before passing the Resolution:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Total number of\nstock options<\/li><li>Identification of\neligible employees<\/li><li>Appraisal\nProcess for determining the eligibility<\/li><li>Looking into\nrequirements of the vesting period<\/li><li>Determination of\nthe exercise period and process<\/li><li>Mentioning of\nany lock-in period<\/li><li>Maximum number\nof Options should be granted per Employee<\/li><li>Valuation of the\nOptions<\/li><li>When Termination\nof Options can be done<\/li><li>Filing of form\nMGT-14 after the Resolution is passed in the Meeting<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p> The Companies Act, 2013 permit the allocation of share to the shareholders. The Issue of Shares through ESOP can only be permitted when there is 75% majority of the shareholders are in favour of it. The Issue of Shares through ESOP is for the benefit of employees and development of Company as well. We at <a href=\"https:\/\/corpbiz.io\/\"><strong>Corpbiz<\/strong><\/a> provide you help in interpreting the legal provisions of the Companies Act, 2013. Our team of professionals will assist you with the documentation process of the ESOP Schemes. Our professionals will plan ideally and will make sure the successful completion of the process.  <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/converting-existing-llp-into-private-limited-company\/\"> Grow your Business by Converting Existing LLP into Private Limited Company<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>At a growing stage of the Companies, Employee Stock Option Plan (ESOP) plays a vital role to attract and preserve valued employees for long term altitudes. If a company proposes to increase its subscribed capital by issuance of shares, such shares issued will be offered to Employee\u2019s under the ESOP scheme, through a resolution passed [&hellip;]<\/p>\n","protected":false},"author":16,"featured_media":4133,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[120,340],"tags":[358],"acf":{"service_id":"321"},"authorName":"Sakshi Sharda","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/sakshi-sharda.jpg","authorDescription":"Sakshi Sharda has done BBALLB(HONS) and holds a strong knowledge on the matters pertaining to finance and law. From the past one year she is working as a legal advisor and in her leisure time she works on improvising her knowledge. Sakshi is spreading her knowledge by writing for Corpbiz.","postViews":11952,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4126"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=4126"}],"version-history":[{"count":16,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4126\/revisions"}],"predecessor-version":[{"id":50777,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4126\/revisions\/50777"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/4133"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=4126"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=4126"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=4126"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}