Process of ESOP Allotment in Listed companies

Section 62 (1) (b) of Companies Act, 2013 states that where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to employees under a scheme of employees’ stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed in Rule 12 of The Companies (Share Capital and Debentures) Rules, 2014.

Whereas, Rule 12 of The Companies (Share Capital and Debentures) Rules, 2014 states that a company, other than a listed company, which is not required to comply with Securities and Exchange Board of India Employee Stock Option Scheme Guidelines shall not offer shares to its employees under a scheme of employees’ stock option (hereinafter referred to as “Employees Stock Option Scheme”), unless it complies with the given requirements thereof.

So, it is clear from the above provisions that Rule 12 of The Companies (Share Capital and Debentures) Rules, 2014 is not applicable to Listed Companies. Instead, Listed Companies have to follow SEBI (Share Based Employee Benefits) Regulations, 2014 for offering ESOP’s to employees under a scheme of Employees’ Stock Option (ESOS).

And, as per SEBI (Share Based Employee Benefits) Regulations, 2014, a scheme of Employees’ Stock Option (ESOS)may be implemented either directly or by setting up an irrevocable trust(s). Now, hereunder we will discuss the summarized process of ESOP allotment in listed companies directly i.e. other than by way of creating irrevocable trust [read in conjunction with Companies Act, 2013 with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 with SEBI (Share Based Employee Benefits) Regulations, 2014 with SEBI (Listing Obligations And Disclosure Requirements) Regulations, 2015]

1. An advance notice of the Board meeting at least two working days before to the Stock Exchanges where securities of the Company are listed.

2. Hold Board Meeting for

a. Approving the ESOS

b. Calling and approving the Notice of AGM/EGM for passing Special Resolution

3. Outcome of the Board Meeting is also to be notified within 30 minutes of the conclusion of the Board meeting.

Where at any time, a Company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to employees under a scheme of Employees’ Stock Option (ESOS) in accordance with SEBI (Share Based Employee Benefits) Regulations, 2014, subject to approval of shareholders by passing a Special Resolution in the General Meeting.

A separate resolution shall also be passed in case of grant of options to

i. employees of subsidiary, holding or associate company or

ii. identified employees, during any one year, equal to or exceeding one per cent of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of options

4. Make disclosures to the grantees.

5. An advance notice of the General meeting at least two working days before to the Stock Exchanges where securities of the Company are listed.

6. Hold General Meeting and pass required Special Resolution.

7. Outcome of the General Meeting is also to be notified within 30 minutes of the conclusion of the meeting to the STX’s.

8. File e-form MGT-14 within 30 days of passing the special resolution with ROC.

9. For listing of shares issued pursuant to ESOS, the company shall obtain the in-principle approval of the stock exchanges before issuing shares as per Regulation 28 of LODR where it proposes to list the said shares.

10. The company shall appoint a registered merchant banker for the implementation of schemes covered by these regulations till the stage of obtaining in-principle approval from the stock exchanges.

11. Grant of options by Nomination & Remuneration Committee.

Further, Company shall constitute a Nomination & Remuneration Committee for

i. granting of options to the employees of the Company.

ii. administration and superintendence of the scheme which shall formulate the detailed terms and conditions of the schemes including the provisions as specified by SEBI in this regard. The ESOS shall contain the details of the manner in which the scheme will be implemented and operated and no ESOS shall be offered unless the disclosures, as specified by SEBI in this regard, are made by the company to the prospective option grantees.

iii. framing suitable policies and procedures to ensure that there is no violation of securities laws, as amended from time to time, including Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 and Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003 by the company and its employees.

The company granting option to its employees pursuant to ESOS will have the freedom to determine the exercise price subject to conforming to the accounting policies specified in regulation 15 provided there shall be a minimum vesting period of one year in case of ESOS

The company may also specify the lock-in period for the shares issued pursuant to exercise of option.

12. Intimate STX’s regarding the grant made to the employees within 30 minutes of conclusion of meeting.

13. If the grant is made to NRI employees, then file Form-ESOP within 30 days of Grant with RBI as per FDI policy, 2016.

14. Prepare a list of options to be exercised by the employees.

15. In case of NRI employees check the mode of payment whether through NRO account/ NRE account or remittance through overseas bank.

16. In case of NRI employees, if the payment is from NRE a/c or through overseas bank, file the intimation of receipt of funds in Form ARF along with KYC and Credit Advice /FIRC on e-biz portal within 30 days of receipt to RBI through AD.

17. Hold Board meeting/ESOP Allotment committee meeting for allotment of shares.

18. Intimate STX’s as soon as reasonably possible and not later than 24 hours.

19. When allotment is made to NRI employees against funds received from NRE a/c or through overseas bank, then as per FDI policy, 2016 file Form-FCGPR within 30 days of allotment with RBI.

20. File a return of allotment in form PAS 3 with the ROC within 30 days from the date of allotment.

21. For De-mat a/c verification send the list of alloteesto RTA. In case of NRI, the De-mat account should also have non-resident status and if the money is received from NRO account, the status of de-mat account should be Non Resident & non-repatriable (category 4 and sub category 2) and if the payment is received is received from NRE account/ EFT then the status of de-mat account should be Non- Resident & repatriable (category 4 and sub category 1)

22. Preparation of Corporate Action Form for NSDL & CDSL

23. Payment of fees for Corporate Action through Demand Draft of Rs.1150/- in favor of NSDL/CDSL as the case may be.

24. Send the scanned documents to NSDL/CDSL/RTA for corporate action.

25. Submit Form C of Insider Trading with STX’s within 2+2 days of execution/approval by NSDL/CDSL, in case the allotment along with the previous allotment in the same quarter exceeds Rs.10 lakhs

26. Preparation of Listing Application for STX’s along with the necessary annexures.

27. Payment of Stamp Duty.

i. At the time of issue of shares, Stamp duty shall be paid to the Government within 30 days from the date of issue.

ii. The Department of Revenue, Delhi has launched “On-line Stamp duty Payment on Issuance of Shares”. This facility is to be utilized by Companies towards Payment of Stamp Duty on issuance of New Shares.

iii. For this, Company will create a log in on http://www.shcilestamp.com/estamp_share_issuance.html

iv. After creating a log in, populate the relevant details of the New Shares issued against which stamp duty payment is to be made.

v. Submit all the documents online on the portal.Certified that all the aforesaid mentioned documents attached are copy of original and true copy of records of Company and should be digitally signed by Company Director/Company secretary/Chartered accountant.

vi. After that, Department will generate a challan against all the documents submitted online.

vii. After the generation of Challan, Company has to make payment within 5 – 6 working days (recommended).

viii. After making the paymentagainst challan, Company has to deposit a copy of challan with the revenue department.

ix. After verification of challan, Department issues a certificate certifying the payment of Stamp duty.