ESOP Rules India

ESOP Rules India

Accounting rules and regulations can be quite tedious for every firm and have to deal with it. With our help, you will be able to solve all your doubts and confusion regarding accounting issues. Today, we will focus on the topic of ESOP rules in India. If you have more questions, then take a look at our other articles on a similar topic at

Before we get into the ESOP rules, let us determine what ESOP means. 

What is ESOP?

The Employment Stock Ownership Plan, or ESOP, is a section 401(a) of the Internal Revenue Code that permits employees to purchase stock in the company where they work. Both public and private companies can support ESOPs. They invest primarily in the sponsoring company's securities and might be leveraged or non-leveraged.

Stock shares make up this investment. This is an excellent strategy because it provides numerous tax benefits to the company, the selling shareholder, and other stakeholders. Companies frequently use employee stock ownership plans (ESOPs) to satisfy their employees and assist match their interests.

The ESOP is set up as a trust fund, and employees can receive money to buy existing shares, borrow money from the firm to buy shares, or have the company sponsor it directly and add new shares to their trust fund.

Now that you know what ESOP is, here are some of the ESOP rules:

Who can avail of the ESOP that is being issued?

ESOPs can be issued to the following employees according to Rule 12(1) of the Companies (Share Capital and Debentures) Rules, 2014.

  • A firm employee who works in India or abroad permanently.
  • A company director who is either full-time or part-time, but not an independent director.
  • A permanent employee or director of a subsidiary company, holding company, or associate company in India or beyond India.

The following employees are not eligible for an ESOP according to the  ESOP rules:

  • An employee who is a member of the promoter group or a company promoter.
  • A director who, directly or indirectly, owns more than 10 percent of the company's outstanding equity shares, whether directly or indirectly through a corporation or a relative.

However, the two restrictions mentioned above do not apply to Startup Companies for the first ten years after their incorporation.

What are some things to inform before issuing:

In the explanatory statement attached to the notice for approving the special resolution for the issue of ESOP-qualified stock, the firm should disclose the following disclosures.

  • The total number of stock options that will be given out,
  • Employees who are eligible to participate in the ESOP have been identified.
  • Vesting Period Requirements for ESOPs,
  • The maximum amount of time the options can be vested in,
  • The cost of exercise and the exercise process,
  • If there is a lock-in period,
  • Employees are given the greatest number of options possible.
  • The company's techniques for valuing its options,
  • The criteria for the expiration of employee options,
  • A declaration that the company will adhere to the relevant accounting rules.

An Employee Stock Option Plan or Scheme must include the following, according to the Indian Government's ESOP rules :

  •  "Employee Stock Purchase Plan or Employee Stock Option Scheme," in which an employee authorizes his company to deduct a portion of his monthly salary, the cumulative amount of which is used to purchase shares at a discounted price or at a later period.
  •  "Employee Stock Ownership Plan," in which a corporate employee is given the option to buy company stock at a certain price after a set length of time, either directly or indirectly, through a trust.
  •  "Employee Stock Purchase Scheme," in which the company offers shares to an employee at a predetermined price as part of a public offering or otherwise.
  • "Employee Stock Opportunity Scheme," in which the company gives its employees the option to purchase a certain number of shares at a certain price.

(v) "Stock Appreciation Rights or Plans," where employees are given stock equivalents at a predetermined value and can cash in those rights once a particular minimum time period has passed.

These are the ESOP rules that​​ apply to shares or stock equivalents issued by the following companies:

(i) a corporation as defined in section 2 clause (17) of the Income-tax Act of 1961, which—

(a) is listed on a recognized stock exchange in India or an international stock market;

(b) is a domestic corporation that is not publicly traded, or

(ii) to the firm's workers referred to in (i) above, the subsidiary or holding company of such a company.

And where the company mentioned in (i) or (ii) above does business in India.

Hope this article on the ESOP rules was helpful for you to clear all your doubts about it. Now you will be able to issue the ESOP without any trouble easily. For more informative content like this, you should check out Especia.

If you are looking for any Employee stock option plan ESOP services or consultants in Noida, Delhi, Gurgaon or anywhere in India, write to us at Or Call On :(+91)-9711021268 +91-9310165114


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