Employee Stock Option Scheme

An Employee Stock Option Scheme is a program that grants employees the right, but not the obligation, to purchase a certain number of company shares at a predetermined price (exercise price) within a specific timeframe (vesting period). It’s essentially a chance to own a piece of the company you work for.

Procedure for Issuance of the Employee Stock Option Scheme:

Design ESOP Scheme:

The first step in issuing an employee stock option scheme is to design a comprehensive employee stock option scheme outlining the terms, conditions, and mechanisms for granting stock options to employees.

Prepare the notice:

Prepare the notices for the board meeting along with a copy of the draft resolution to be passed in the meeting.

Send the notice:

of the board meeting to all the directors at least seven days before the meeting.

Pass the Board resolution:

The board resolution shall require the following resolution to be passed in the board meeting:

• Issuance of shares through the Employee Stock Option Scheme.
• Find out the price of shares to be issued pursuant to the Employee Stock Option Scheme.
• Fix the time and date,
• Approve the notices for calling the general meeting to pass a special resolution for issuing the employee share option plan (ESOP).
• Authorize the director or company secretary to issue a notice for the general meeting.

Send the draft minutes:

A copy of the draft minutes of the board meeting shall be sent to all the directors within fifteen days of the conclusion of the meeting, and the MGT-14 e-form along with the board resolution shall be filed with the Registrar of Companies.

Send notice of the general meeting:

A copy of the notice shall be required to be sent to all the directors, auditors, shareholders, and secretarial auditors of the company at least 21 days before the date of the meeting.

Pass the special resolution by shareholder:

A special resolution shall be required to be passed for the issuance of shares under the ESOP to the employees, directors, and officers of the company in the general meeting.

File MGT-14:

The company shall file the MGT-14 TO registrar of companies within 30 days from the date of passing resolution.

Send options:

ESOP shall send shares to the employees, directors, and officers of the company for purchasing shares under ESOP.

Maintain a ‘Register:

The company shall be required to maintain the Register of Employee Plan Stock Option in Form No. SH-6 and enter the particulars of the ESOP granted to the employees, directors, or officers of the company.

Employee Stock Option Plan (ESOP):

The Employee Stock Option Plan (ESOP) is an incentive for employees. It is issued by the company to its employees to inspire employee ownership in the company. The shares given to the employee by the companies at discounted rates.

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