1. An ESOP is used primarily as
 talent retention tool
 incentive
 or remuneration
apart from the larger vision of sharing of wealth.
Earlier to the Companies Act 2103 (“Act”), private limited
companies and unlisted public limited companies had
freedom and flexibility to structure ESOP for their
employees. The Act now has become prescriptive and has
Rules on eligibility of employees/promoters, cliff,
accelerated vesting and the like.
While the changes made in the Act are prospective,
even so, if your company had ESOP earlier and
there are modifications to be made to the Plan,
then please be very careful.
ESOP: Unplugged

2. ELIGIBILITY FOR ESOP?
ARE THERE ANY DISQUALIFICATIONS FOR ESOP?
DOES
ESOP GETS COVERED UNDER PRIVATE PLACEMENT?
IS BUYBACK OF ESOP POSSIBLE?
HOW IS ESOP SCHEME PUT IN PLACE?
WHERE ALL ESOP DISCLOSURES ARE REQUIRED?
Every
Director of
the
Company
Permanent
employee of
the Company
Board Approval
Employee of a
Subsidiary, Holding
or an Associate
Company
Every Employee
Any
Promoter
Director
(founders)
A director, who,
directly or indirectly,
holds more than 10%
share-holding
No
Section 42 specifically excludes ESOP
Yes
Permanent
employee, who is
a promoter or
belongs to
Promoter Group
Shareholders’
approval through
special resolution
Determination of exercise
price by Registered Valuer
at the time of exercise

3. CAN TERMS OF ESOP SCHEME BE VARIED?
IS TIME PERIOD PRESCRIBED BETWEEN GRANTING OF OPTIONS AND VESTING OF
OPTIONS?
WHAT ARE THE SHAREHOLDER
RIGHTS OF EMPLOYEES?
CAN THE COMPANY DECIDE LOCK IN PERIOD?
IS THE OPTION TRANSFERABLE?
Directors
Report
Only if it’s not prejudicial to the
interests of option holders
through shareholders’ approval
Minimum time lapse between
granting and vesting is 1 year
Company has the freedom to fix
lock in period. No minimum or
maximum period prescribed for
lock in.
Can’t enjoy any shareholder’s
benefits, until the shares are
issued on exercise of option (and
allotment of shares).
No
Explanatory
Statement supported
by a valuation
certificate
Financial
Statements