Checklist for Issuing ESOP under Companies Act, 2013

• Section 62(1)(b) of the Companies Act, 2013 and Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 (“Rules”),
• Section 2(37) of the Companies Act, 2013
• Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014

According to Rule 12(1) of the Companies (Share Capital and Debentures) Rules, 2014, the following employees are eligible to receive an ESOP:

• A company’s long-term worker who is based in or outside of India.
• A director of the company, whether they are employed full-time or part-time; independent directors are not included.
• A permanent employee or director of a holding company, associate company subsidiary company based in India or abroad.

The following employees are ineligible for ESOP from their employer:

• An employee who is a company promoter or a member of the promoter group.
• A director who controls more than 10% of the outstanding equity shares of the company, directly or indirectly, either personally, through a body corporate, or through a relative.

However, for 10 years following the date of establishment, Start-up Companies are exempt from the aforementioned two restrictions.

2. Explanatory Statement shall contain the following:

(a) total no. of options to be granted

(b) identification of classes of employees entitled to participate in ESOS

(c) requirement of vesting and period of vesting

(d) maximum period within which the option shall be vested

(e) exercise price or pricing formula

(f) exercise period and process of exercise

(g) the appraisal process for determining the eligibility of employees to the ESOS

(h) maximum number of options to be issued per employee and in aggregate

(i) a statement to the effect that the company shall conform to the accounting policies specified in clause 13.1

(j) the method which the company shall use to value its options whether fair value or intrinsic value

(k) In case company calculates employee compensation cost using intrinsic value of the stock options, a statement that the diff. between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options, shall be disclosed in the Directors Report and also the diff. on profits and on EPS shall also be disclosed in the Directors Report.

3. Approval of shareholders by way of separate resolution in case of:

(a) grant of option to employees of subsidiary or holding company

(b) grant of option to identified employees, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option.

2. Prepare the notice for the board meeting along with the draft resolution to be passed in the board meeting.

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

4. Pass the resolution for the issuance of shares through ESOP, determine the price of shares to be issued pursuant to ESOP and fix the time and date, and approve for calling the general meeting to pass a special resolution for issuing ESOP.

5. Send the draft minutes of the board meeting to all the directors within fifteen days of its conclusion and file the MGT-14 form with the Registrar of Companies of passing the board resolution.

6. Send notice of the general meeting to all the directors, auditors, shareholders, and secretarial auditors of the company at least twenty-one days before the date of the meeting.

7. Pass the special resolution (ordinary resolution in case of Private Co.) for the issuance of shares under the ESOP to the employees, directors, and officers of the company in the general meeting. The approval of shareholders by way of separate resolution shall be obtained by the company in case of –

(a) grant of an option to employees of a subsidiary or holding company; or

(b) grant of option to 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 option.

8. File the MGT-14 form with the Registrar of Companies within thirty days of passing the special resolution in the general meeting along with the documents.

9. Send options to the employees, directors and officers of the company for purchasing shares under ESOP.

10. Vesting of Options. There shall be a minimum period of one year between the grant of options and the vesting of options.

11. Exercise of Options by the employees;

12. Allotment of Shares: When an option is exercised by an employee then file form PAS-3 to ROC.

13. Maintain a ‘Register of Employee Stock Options’ in Form No.SH-6 and enter the particulars of the ESOP granted to the employees, directors or officers of the company.

Disclosure in the Balance Sheet

Details of the shares issued under Employee stock option scheme including the details of the quantum of the shares, pricing of the shares, number of options granted, number of options exercised etc.

Under Clause 4(vii) of Part II to Schedule III the details of the perquisites and benefits given in cash or in kind to the Directors including Managing Directors, Managing Agents, Secretaries, Treasures or Managers by the Company, Subsidiaries of the Company or by any other person.

a) options granted;

b) options vested;

c) options exercised;

d) the total number of shares arising as a result of the exercise of option;

e) options lapsed;

f) the exercise price;

g) variation of terms of options;

h) money realized by exercise of options;

i) the total number of options in force;

j) employee-wise details of options granted to;

 i. key managerial personnel;

 ii. any other employee who receives a grant of options in any one year of options amounting to five per cent or more of options granted during that year.

 iii. identified employees who were granted an option, 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;

(i) All elements of the remuneration package such as salary, benefits, bonuses, stock options, pension, etc., of all the directors;

(ii) Stock option details, if any, and whether the same has been issued at a discount as well as the period over which accrued and over which exercisable.

(a) the total number of stock options to be granted;

(b) identification of classes of employees entitled to participate in the Employees Stock Option Scheme;

(c) the appraisal process for determining the eligibility of employees to the Employees Stock Option Scheme;

(d) the requirements of vesting and the period of vesting;

(e) the maximum period within which the options shall be vested;

(f) the exercise price or the formula for arriving at the same;

(g) the exercise period and process of exercise;

(h) the Lock-in period, if any ;

(i) the maximum number of options to be granted per employee and in aggregate;

(j) the method which the company shall use to value its options;

(k) the conditions under which option vested in employees may lapse e.g. in case of termination of employment for misconduct;

(l) the specified time period within which the employee shall exercise the vested options in the event of a proposed termination of employment or resignation of an employee; and

(m) a statement to the effect that the company shall comply with the applicable accounting standards.