1. Draft the ESOP scheme.
2. Convene the Board Meeting and pass the scheme.
3. Call the general meeting to approve the scheme by Shareholders. The following disclosure will be made 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;
(h) the Lock-in period, if any ;
(i) the maximum number of options to be granted per employee and in aggregate;
(j) the method which the company shall use to value its options;
(k) the conditions under which option vested in employees may lapse e.g. in case of termination of employment for misconduct;
(l) the specified time period within which the employee shall exercise the vested options in the event of a proposed termination of employment or resignation of employee; and
(m) a statement to the effect that the company shall comply with the applicable accounting standards.
4. Approve the ESOP Scheme by passing a special resolution (ordinary resolution in case of Private Company). The approval of shareholders by way of separate resolution shall be obtained by the company in case of -
(a) grant of option to employees of subsidiary or holding company; or
(b) 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.
5. File form MGT-14 to submit the special resolution within 30 days of passing the resolution.
6. After approval of ESOP scheme by the shareholders, grant options to the eligible employees.
7. Vesting of Options. There shall be a minimum period of one year between the grant of options and vesting of option.
8. Exercise of Options by the employees;
9. Allotment of Shares. As and when options are exercised file form PAS-3 (Return of Allotment) with ROC.
10. The company shall maintain a Register of Employee Stock Options in form SH-6 and shall forthwith enter therein the particulars of option granted.
Where a Company implements any ESOP Scheme in the Organization, then it is required to make the following disclosure under the Companies Act 2013, in respect of the Options allotted and exercised under the said Scheme.
Disclosure in the Balance Sheet:
As per Part I to the Schedule III of the Companies Act, 2013, following disclosures are to be made in the Balance Sheet of the Company:
Details of the shares issued under Employees stock option scheme including the details of the quantum of the shares, pricing of the shares, number of option granted, number of option exercised etc.
Disclosure in the profit and loss account:
As per Part II to the Schedule III of the Companies Act, 2013 following disclosures are required to be made in the Profit & Loss Account of the Company.
Under Clause 4(vii) of the Part II to the Schedule III the details of the perquisites and benefits given in cash or in kind to the Directors including Managing Directors, Managing Agents, Secretaries, Treasures or Managers by the Company, Subsidiaries of the Company or by any other person.
Disclosure in the Director's Report:
In terms of Rule 12 of Chapter IV of Companies Act, 2013, The Board of directors, shall, inter alia, disclose in the Directors’ Report for the year, the following details of the Employees Stock Option Scheme:
options granted;
options vested;
options exercised;
the total number of shares arising as a result of exercise of option;
options lapsed;
the exercise price;
variation of terms of options;
money realized by exercise of options;
total number of options in force;
employee wise details of options granted to;
key managerial personnel;
any other employee who receives a grant of options in any one year of option amounting to five percent or more of options granted during that year.
identified employees who were granted option, 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;
Disclosures in Directors’ Report under schedule V of the Companies Act, 2013
As per the Schedule V to the Companies Act 2013, If in any financial year, company is not having any profit or its profits are inadequate, and the company is paying remuneration to its managerial personnel by way of salary, dearness allowance, perquisite and other allowance under (ii) (b) of Part II, then the company is required to make the following disclosures under the head of corporate governance of the director's report of the company:
(i) All elements of remuneration package such as salary, benefits, bonuses , stock options, pension, etc., of all the directors;
(ii) Stock option details, if any, and whether the same has been issued at a discount as well as the period over which accrued and over which exercisable.
Disclosures to be made in the Explanatory Statement attached to the Notice for calling the General Meeting for the approval of the Scheme:
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;
(h) the Lock-in period, if any ;
(i) the maximum number of options to be granted per employee and in aggregate;
(j) the method which the company shall use to value its options;
(k) the conditions under which option vested in employees may lapse e.g. in case of termination of employment for misconduct;
(l) the specified time period within which the employee shall exercise the vested options in the event of a proposed termination of employment or resignation of employee; and
(m) a statement to the effect that the company shall comply with the applicable accounting standards.
Basic things to consider while developing ESOP scheme in your startup Company
- Employee means
(a) a permanent employee of the company working in India or out of India or
(b) a director of the company, whether WTD or not or
(c) an employee as defined in sub-clause (a) or (b) of a subsidiary, in India or out of
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.
2. Employee compensation means the total cost incurred by the company towards employee compensation including basic salary, dearness allowance, other allowances, bonus and commissions including the value of all perquisites provided, but does not include:
(a) the fair value of the option granted under ESOS and
(b) discount at which shares are issued under an ESPS
3. Employee stock option means the option given to the whole-time Directors, Officers or employees of a company which gives them the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a pre-determined price.
4. ESOS means a scheme under which a company grants employee stock option.
5. ESPS shares means shares arising out of grant of shares under ESPS.
6. Exercise means making of an application by the employee to the company for issue of shares against option vested in him in pursuance of the ESOS.
7. Grant means issue of option to employees under ESOS.
8. Independent Director means a director of the company, not being a whole time director and who is neither a promoter nor belongs to the promoter group.
9. Intrinsic value means excess of the market price of the share under ESOP over the exercise price of the option (including up-front payment, if any).
10. Market Price means latest available closing price (at the stock exchange where there is highest trading volume) prior to date of Board meeting in which options are granted/shares are issued.
11.Promoter means:
(a) the person or persons who are in overall control of the company.
(b) the person or persons who are instrumental in the formation of the company or programme pursuant to which the shares were offered to the public.
(c) The person or persons named in the offer documents as promoter(s). Provided that a director or officer of the company, if they are acting as such only in their professional capacity will not be deemed to be a promoter.
12. Promoter group means
(a) an immediate relative of the promoter (i.e spouse, parent, brother, sister or child of the person or of the spouse.
(b) persons whose shareholding is aggregated for the purpose of disclosing in the offer document “Shareholding of the promoter group”.
13. Share means equity shares and securities convertible into equity shares and shall include ADR, GDR or other depository receipts representing underlying equity shares or securities convertible into equity shares.
14. Vesting means the process by which the employee is given the right to apply for shares of the company against the option granted to him in pursuance of ESOS.
15. Vesting period means the period during which the vesting of the option granted to the employee in pursuance of ESOS takes place.
Company Secretary GAURAV SHARMA+919990694230 Connect on Watts App with Gaurav Email us [email protected] Submit your guest articles for our website click here we will publish it Subscribe our Email updates like other 21,000 Members, Free/Easy/Comfortableway
