Introduction:
The Companies Act, 2013 (Act) and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 (Rules) prescribes the provisions for the Issuance & Modification of Employee’s Stock Options by Private Limited companies.
The Companies Act, 2013
As per Section 62 (1) (b) of the Act, A Private Limited Company can issue further shares to Employees under a scheme of Employees’ Stock Option (ESOPs), pursuant to an Ordinary Resolution.
Rule 12 (5) of the (Share Capital and Debentures) Rules, 2014
Under the said Rules, Terms of ESOP Policy can be modified.
(a) The company may by special resolution, vary the terms of Employees Stock Option Scheme not yet exercised by the employees provided such variation is not prejudicial to the interests of the option holders.
(b) The notice for passing special resolution for variation of terms of Employees Stock Option Scheme shall disclose full of the variation, the rationale therefor, and the details of the employees who are beneficiaries of such variation.
PROCEDURE FOR MODIFICATION OF ESOP POLICY:
Rule 12(5) of Companies (Share Capital and Debentures) Rules, 2014 (“Rules”) governs the modification of ESOP. The procedure for Modification of Terms of ESOP Policy:
1. Identify the modification area of the ESOP policy as per the requirements of the Company and in accordance with the Companies Act, 2013 and Rules.
2. Sending of Notice & Agenda of Board Meeting to all the Directors of the Company (at least Seven Days before the Meeting & Quorum for the Meeting should be one third of its total strength or two directors, whichever is higher i.e. in our Case Mr. Rajat & Mr. Anil)
Conducting Board Meeting for passing following Resolutions;
1. Modification of Terms of ESOP Policy subject to approval of Members in General Meeting
2. Conveying of General Meeting to pass a Special Resolution for above Modification in ESOP Policy.
3. Sending Notice & Explanatory Statement of General Meeting to all the Directors, Auditors, Shareholders and Secretarial Auditors of the Company (at least Twenty-One Days before the Meeting & Quorum for the Meeting should be two members personally present i.e. in our Case Mr. Rajat & Mr. Anil on behalf of M/s. 1Funds Domestic Scheme I); Company should mentioned actual changes of Policy in the Explanatory Statement.
Conducting General Meeting for passing Special Resolution;
1. Passing of Special Resolution for Modification of ESOP Policy
2. After passing of Special Resolution in the General Meeting, the Company needs to file E-Form MGT-14 with the Registrar of Companies (ROC) within thirty days of passing the Special Resolution in the General Meeting along with the documents as mentioned below:
i. Notice along with Explanatory Statement
ii. Shorter Notice Consent if Any
iii. Member Resolution
Clarification to the Sub-Rule (5) of Rule 12 Companies (Share Capital and Debentures) Rules, 2014 which states as follows:
1. Variation is not prejudicial to the interests of the option holders – Company can modify any clause of the ESOP Policy but it should not be prejudicial to the interests of the option holders.
2. The details of the Employees who are beneficiaries of such variation – All the Employee who are eligible to Grant option or who already has granted the Options under ESOP Scheme of the Company.
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