Employees' Stock Option Plan (ESOP) | Employees' Stock Option Scheme (ESOS)

Employees' Stock Option Plan (ESOP) or Employees' Stock Option Scheme (ESOs)

Employees' Stock Option Plan means the opportunity given to the directors and employees of a company/ its holding /subsidiary company which gives them the right to purchase/subscribe for the shares of the company at a future date at a pre -determined price.

Provisions of ESOS are prescribed under section 62 of Companies Act, 2013 and Rule 12 of Companies (Share Capital and Debentures) Rules, 2014.

The option given is not an obligation but an offer to subscribe to its shares at a future date. The Companies usually goes for this type of scheme when they need to motivate their employees to improve the performance of the company in which they are also offered to become the shareholders. In this way company can retain them for long by providing good incentives.

Eligibility:

As per Section 62(1)(b), the company which can increase its subscribed capital by issue of shares to employees under ESOS. Here the term “employees” means:

(a) a permanent employee of the company who has been working in /outside India; or

(b) a director of the company, whether a whole time director or not, except an independent director; or

but does not include:

(i) an employee who is a promoter or belonging to the promoter group; or

(ii) a director who either himself / through his relative / through any body corporate, directly or indirectly, holds more than 10 percent of the outstanding equity shares of the company.

Exception: in case of a startup company the conditions mentioned in sub-clause (i) and (ii) shall not apply upto 5 years from the date of its incorporation or registration.

Procedure for ESOP Issue

S.No.	Particulars
1.	Decide the Cut-off date for determining the eligible shareholders who will be given the right.
2.	Finalize the value of shares for which it is issued and period for which the offer shall be open.
3.	Keep the draft letter of offer ready specifying: Number of shares offered Right of renunciation
4.	Convene Board Meeting by issuing seven days notice. Pass the resolution for approval of rights issue and the offer letter.
5.	Dispatching of offer letter shall be done at least 3 days before the opening of the issue through registered post /speed post / electronic mode / courier / any other mode having proof of delivery.
6.	Opening of the offer (minimum of 15 days and maximum of 30 days) and acceptance of money.
7.	Convening of Board Meeting for allotment of securities within 60 days from date of receipt of money (failing which it shall be treated as deposit) or for disposing them in such manner prescribed.
8.	Authorise a director to file E-form PAS-3 to ROC within 30 days of allotment with the following attachments: • Certified True Copy of the resolution of Allotment • List of allottees as per prescribed format.
9.	Issue Share Certificates to the allottees within 2 months from the date of allotment.