ESOPs or Employee Stock Option Plans are the most imperative type of compensation for the key employees of the organization. From a start-up’s point of view, it keeps up liquidity, and from an employee's viewpoint; it is a reward for faithfulness towards the organization.
ESOPs Compensation is nowadays a popular tool for compensation and retention by a lot of Startups and Indian as well as Multi-National Companies.
Especia assists in ESOP valuation for unlisted entities, valuation of sweat equity shares & services in Noida, Delhi, Gurgaon, NCR & All over India by estimating the value of the options for regulatory, compliance & tax purposes for the employer as well as employees.
Usefulness of ESOP
- Since the Equity shares refer to the Ownership in the company, employees can become part of the company’s success over a period of time.
- As per these plans, generally, shares are given at a pre-determined price, hence the employees can stand benefitted by selling the shares at a future point of time.
- These schemes carry great motivation for employees to perform and grow with the company.
- Employees pay zero tax on the contributions to the Esop.
For the company:
- Leverage employees’ morale urging them to perform better in their day-to-day tasks.
- Boosts employee retention and thereby lowers the turnover rate.
- Savings on director remuneration for a private limited company as a part of salary by offering a certain portion of ESOPs.
Regulatory Requirement for Valuation of ESOPs & Valuation of sweat equity shares in India
Ind AS 102: Ind AS (Indian Accounting Standard) 102 prescribes financial reporting in respect of share-based benefits and is relevant for companies that remunerate their employees by share-based (or stock option) schemes, such as employee stock options (ESOP), Valuation of ESOPs, share appreciation rights (SAR), phantom equity, share purchase plans (SPP), etc.
Income tax provisions: As per Income Tax Provisions, ESOPs in India have been made taxable in the hands of employees as ‘Perquisites’, subject to certain conditions. For the purposes of clause (vi) of sub-section (2) of section 17, the fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee, shall be determined merchant banker (if shares are not listed) by doing Valuation of ESOPs.
Simple 3 steps involved in your valuation of ESOPs / Valuation of sweat equity shares in India
- Sharing of Preliminary Checklist based on the Client’s requirement.
- Preparation of Draft ESOP valuation report for review.
- Discussions and Submission of Final ESOP valuation for unlisted entities & listed as well & reporting.
If you have any other questions on ESOP Valuation for unlisted companies or sweat equity valuation in India, you can write to us at firstname.lastname@example.org