An employee stock ownership plan (ESOP) is an employee benefit plan that gives workers ownership interest in the company.
As per Section 62(1) of the Companies act, 2013 if the Company decides to issue fresh shares, these should be offered to existing shareholders in proportion to existing persons who are holders of equity shares. ‘Right Issue’ means offering shares to existing members in proportion to their existing share holding.
Article explains Brief procedure for issue of ESOP under Companies act, 2013
| BRIEF ESOP PROCEDURE UNDER COMPANIES ACT, 2013 | ||||
| STEPS NO. | PARTICULARS | DOCUMENTS | FORMS | TIMELINES |
| 1 | Drafting of ESOP scheme | – | – | – |
| 2 | BM (1st) | – Approve Draft ESOP Plan – Approve Letter of Offer – Approve EGM Notice |
– | – |
| 3 | Calling EGM for approval of shareholders | – | – | 21 clear days notice |
| 4 | Convening EGM (Ordinary Resolution/Special Resolution)* | -Approve ESOP along with valuation report -Approve Letter of Offer |
– | – |
| 5 | Granting of options to the eligible employees by way of dispatch of offer letter | – | – | – |
| 6 | Minimum gap of 1 year | |||
| 7 | Initiation of vesting period of options to the participants | – | – | – |
| 8 | Receipt of written communication and application money by the participants w.r.t conversion of options into equity | – | – | – |
| 9 | Convening Board Meeting for the conversion of equity shares and allotment of shares | -Approve draft BR for conversion of options into equity shares -Approve Allotment of shares |
PAS-3 | Within 30 days from Allotment |
| 10 | Payment of stamp duty on shared certificates issued | – | – | – |
| 11 | Register of ESOP | – | SH-6 | – |
| *Ordinary Resolution in case of Private Company, Special Resolution in case of Public Company |
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| Notes to remember:
1. Separate Resolution shall be obtained in case of : (a) grant of option to the employees of subsidiary or holding company or (b) grant of options to identified employees, during any one year, equal to or exceeding 1% of the issued capital of the Company at the time of grant of option. 2. Employees can’t transfer their right of option to any other person 3. The options granted to employees shall not be pledged, hypothecated, mortgaged or otherwise encumbered or alienated. 4. Directors Report shall consist of information {mentioned in Rule 12(9) of (Share Capital and Debentures) Rules, 2014} about ESOP. 5. The Company can specify the lock in period for the shares issued pursuant to exercise of options. |
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