ESOPs –a new genes

under Companies Act, 2013

Ms. Mohini VarshneyaM. No. : +91 9971673332 Email Id: mohini@indiacp.com / info@esoponline.in

What are ESOP? Employee Stock Option Plan/Equity Incentive Plan (commonly referred to as

ESOP) is an employee-owner method that provides a Company's workforce with

an ownership interest in the company

ESOPs are one of the most important tools to attract, encourage and retain

Employees.

The option granted under the plan confers a right but not an obligation on the

employee. Stock options are subject to vesting, requiring continued service

over a specified period of time. Upon vesting of options, employees can

exercise the options to subscribe to the Company’s shares, by paying the pre-

determined exercise price.

Extending benefits through ESOPs is like creating a win-win situation for both

Employer & Employee.

Restructuring modes under ESOP

Stock Options

(Sharing in the Capital of the company)

Employee Stock Option Scheme (ESOS)

Employee Stock Purchase Plan (ESPP)

Restricted Stock Units (RSUs)

Stock Indexed Plans (No sharing in the Capital of the

Company)

Stock Appreciation Rights (SARs

Phantom Stocks

Scenario under ERSTWHILE Companies

Act, 1956

Provisions related to ESOPs were not documented.

Allotment to the Employees was considered under the ambit of

Section 81(1A) related to issuance of shares.

There was no other Regulatory framework for Unlisted companies. However, Listed Companies were been regulated by SEBI (Employee Stock Option Scheme and Employee Stock Purchase

Scheme) Guidelines, 1999

ESOPs- Now covered under the ambit of Companies Act, 2013

Unlisted

Companies

Listed

Companies

Regulated by Section 62(1)(b) ofthe Act read with SEBI (ESOSand ESPS) Guidelines, 1999

Regulated by Section 62(1)(b) ofthe Act read with Rule 12 ofCompanies (Share Capital andDebentures) Rules, 2014.

Scenario under New Companies

Act, 2013

Highlights of Rule 12 of the Companies (Share Capital and

Debentures) Rules 2014.

Approval from Shareholders via Special Resolution

Permanent Employees of Company, Holding Company,

Subsidiary Company and Associate Company can be covered.

All Directors excluding Promoter Directors and Independent

Directors can be covered under the ESOP Plan.

Freedom to determine Exercise Price.

Freedom to determine lock-in period.

Separate resolution to be passed in case of grant to employees

of holding/subsidiary company.

Explanatory statement shall disclose material details as

prescribed.

Highlights of Rule 12 continued…………

Mandatory Annual disclosures in Directors Report.

Minimum period of one year between grant and vesting of

options.

Options granted cannot be pledged, hypothecated or otherwise

transferred.

In case of death, all options granted shall vest in the legal heirs.

In case of resignation, all unvested options shall lapse.

Register to be maintained as per format prescribed by ROC.

ROUTES under ESOp

Trust Route

Fresh allotments of the

Equity shares of the

company are made to

employees, as and

when they Exercise the

Options.

Direct Route

The Company forms an Employee

Welfare Trust for administration of

the ESOP wherein the Company

issues shares to the Trust for

onward transfer to the Employees

upon Exercise of Options

As per NEW companies act, following Are not covered under THE ambit of trustees

Directors

Key Managerial Personnel

Promoter of he Company

Or any relative of such Director, Key Managerial Personnel or Promoter

Beneficial owner holding 10% or more of the paid-up capital

Regulatory framework for PROVISIONING OF MONEY BY COMPANY to EMPLOYEE

WELFARE TRUSTS

• Companies Act, 2013 allows Companies to make provision of money

involving purchase or subscription of its own shares or shares of holding

company subject to the compliance of the following stipulations:

The scheme of provision of money to be separately passed by the

Shareholders.

Value of the Shares in the Trust shall not exceed 5% of the aggregate of

paid up capital and free reserves of the company.

Valuation of the shares purchased by the Trust is to be made by the

Registered Valuer in case of Unlisted Companies.

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