Charting. The Route To Stock Options.
Employee Stock Ownership Plan (ESOP) refers to an employee benefits scheme that gives employees an option to take up an ownership interest in the company. Employee stock ownership plans are provided by issuing direct stock, profit-sharing schemes, or a bonus. The employer possesses the sole authority in deciding who is eligible to avail of these options. Employee stock ownership plans are simply options that can be bought at a specified price before the date of such options period passes. The rules and regulations for such an issue are mentioned in the Companies Rules, which employers are required to adhere to for granting ESOPs to the employees.
Why to provide ESOP
- Stock shares can attract the best talents
- Motivate existing employees
- Retention of employees
- Financial liquidity
- Short-term capital gain
The ‘How To’ Of Providing Stock Options
ESOP Scheme. Exercising The Option.
Documents To Get Us Started
ESOP Resolution. Employee Option Registration.
- Advance notice of the Board Meeting to the stock exchange where security is listed (only in case of listed companies)
- Minutes of the Board meeting
- Special Resolution approving ESOP along with an explanatory statement
- Minutes of General Meeting
- Reports of the Board
- PAS-3
- MGT-14
- Registration of Employee Stock Option Plan
FAQs
Questions On ESOPs. Answered By Experts.
What are the criteria of eligibility for ESOP?
A full-time or part-time Director of the Company
- A current employee of the Subsidiary, Associate, or Holding located anywhere in India, or abroad
- A permanent employee working in an Indian or Foreign office of the company
What are the employees ' various option plans?
- ESOS ( Employee Stock Option Scheme)
- ISO(Incentive Stock Option)
- ESP( Employee Stock Purchase)
- SARs(Stock Appreciation Rights)
- RSA( Restricted Stock Award)
- RSU( Restricted Stock Unit)
The selection criteria would depend entirely on the purpose of the ESOP plan. For example, if the company’s goal is to reduce the attrition rate, the vesting period would be longer than usual.
What is the legal compliance to carry out the ESOP scheme?
Legal compliance to be ensured while the ESOP scheme is implemented such as:
- SEBI( ESOP Guidelines)
- Companies Act
- Income Tax Act
- Accounting Guidelines(ICAI, IFRS, US GAAP)
- FEMA
Are ESOP transferable by the employee to any third party?
ESOPs are not autonomous shares. They can not therefore be transferred, but once they have been converted to shares, an employee can freely transfer them under the terms and conditions laid down by the firm.
Are the options valid for any lifespan or period?
There are no lifetime options. Either when an employee is terminated or at the end of the period of practice, the option lapses depending on the conditions specified by the employer. Once an option has expired it cannot be converted into shares.
