ESOP Regulations

    • Functioning of law
    • Who can issue the services?
    • Description of law
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An employee Stock Option Plan (ESOP) is an Employee Benefit Plan. Issued by the company to employees to encourage their participation in the company. Company stock is allocated to employees at a discounted rate. Any company can issue an ESOP.

All companies other than listed companies must be issued by the provisions of the Companies Act 2013 and the Companies (Capital and Bonds) Regulations 2014. For public companies, employee stock options plans must be issued by the Securities and Exchange Commission of India guidelines.

To buy, use, or subscribe to a company at a given price in the future. In this way, the ESOP is a program that proposes that a company increase its participating equity capital by issuing additional shares to its employees at a given rate. The ESOP benefits both the company and its employees. It can benefit startups and reward employees after the company's IPO. Company employees can provide ESOP if they meet the criteria.

To whom can I issue the ESOP?

Rule 12 (1) of the Company (Stock Capital and Bonds) Regulation, 2014, states that an ESOP can be issued to the following employees:

Permanent employee of a company working in or outside India. A director of a company that includes full-time or part-time directors but is not an independent director. Permanent or director of India or a subsidiary outside India, or a holding company or affiliate. 

The company may not issue ESOPs to the following employees: Employees who belong to the

Promoter Group or who are promoters of the company. A director who holds 10% or more of a company's issued shares, directly or indirectly, through himself or a corporation or its relatives. However, the above two conditions do not apply to start-up companies for 10 years from the date of establishment.

SEBI stands for ‘The Securities and Exchange Board of India’

ESOP stands for Employee Stock Ownership Plan. ESOPs (Employee Stock Ownership Plans) are plans that are implemented for the benefit of employees and can be inherited by them when they retire, with no tax cost. 

Because the employee is only granted an option with no associated obligation; the employee has no obligation to exercise the option.

The company grants its employees an option to purchase the company's shares at a previously agreed lower price. And for this benefit to accrue, the Company employee must dedicate at least the minimum time specified as per the Company's policies.

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