As per section 2 (37) of the Companies Act, 2013 “employees’ stock option” means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price. A company, other than a listed company, shall not offer shares to its employees under a scheme of employees’ stock option (hereinafter referred to as “Employees Stock Option Scheme”), unless it complies with the following requirements, namely: – I. The issue of Employees Stock Option Scheme has been approved by the shareholders of the company by passing a special resolution (ordinary resolution in case of a private company).
Explanation: For the purposes of ESOP ‘‘Employee’’ means- a) a permanent employee of the company who has been working in India or outside India; or b) a director of the company, whether a whole-time director or not but excluding an independent director; or c) an employee as defined in clauses (a) or (b) of a subsidiary, in India or outside India, or of a holding company of the company, but does not include- i. an employee who is a promoter or a person belonging to the promoter group; or ii. a director who either himself or through his relative or through any body corporate, directly or indirectly, holds more than ten percent of the outstanding equity shares of the company. II. The company shall make the following disclosures in the explanatory statement annexed to the notice for passing of the resolution- a) the total number of stock options to be granted; b) identification of classes of employees entitled to participate in the Employees Stock Option Scheme; c) the appraisal process for determining the eligibility of employees to the Employees Stock Option Scheme; d) the requirements of vesting and period of vesting;e) the maximum period within which the options shall be vested; f) the exercise price or the formula for arriving at the same; g) the exercise period and process of exercise;
Stepwise procedure for issue of ESOP by Private Company is mentioned below; 1. Prepare the draft of ESOP in accordance with the Section 62 of the Companies Act, 2013 and Rule 12 of the Companies (Share Capital & Debentures) Rules, 2014 and other applicable rules as may be amended from time to time. 2. Prepare the notice for the board meeting along with the draft resolution to be passed in the board meeting. 3. Send the notice of the board meeting to all the directors at least seven days before the meeting. 4. Pass the resolution for the issuance of shares through ESOP, determine the price of shares to be issued pursuant to ESOP and fix time and date and approve for calling the general meeting to pass an ordinary resolution for issuing ESOP. 5. Send the draft minutes of the board meeting to all the directors within fifteen days of its conclusion and file the MGT-14 form with the Registrar of Companies of passing the board resolution.
6. Send notice of the general meeting to all the directors, auditors, shareholders and secretarial auditors of the company at least before twenty-one days of the date of the meeting. 7. Pass ordinary resolution for the issuance of shares under the ESOP to the employees, directors and officers of the company in the general meeting. 8. The approval of shareholders by way of separate resolution shall be obtained by the company in case of- i. grant of option to employees of subsidiary or holding company; or ii. grant of option to identified employees, during any one year, equal to or exceeding one percent of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option. 9. File MGT-14 form with the Registrar of Companies within thirty days of passing the ordinary resolution in the general meeting along with the documents. 10. Send options to the employees, directors and officers of the company for purchasing shares under ESOP. 11. Maintain a ‘Register of Employee Stock Options’ in Form No.SH-6 and enter the particulars of the ESOP granted to the employees, directors or officers of the company. 12. If a private company wants to issue ESOP, then it should ensure that the Articles of Association (AoA) authorizes for issuance of shares through ESOP. If the AoA does not authorise, then the company should first hold an extraordinary general meeting to alter the AoA to include the provisions of issuance of shares through ESOP and then proceed with holding the board meeting for the passing of the resolution and getting the shareholder’s approval for ESOP Scheme. 13. There should be a minimum vesting period of one year from the date of grant of options.
