Procedure of issue of ESOP By Unlisted companies?

The Employee Stock Option Plan (ESOP) is an employee benefit plan. ESOPs are issued to employees at a price less than the actual price of the shares. Section 62 of the Companies Act, 2013 read with the Companies (Share capital and Debentures) Rules, 2014 is followed for issue of ESOP by Unlisted Companies. The reason behind issuing ESOPs is to retain the employees and reward them for their performance. The procedure to issue ESOP by unlisted companies is mentioned below.

1. ESOP SCHEME

The first step to issue ESOP is to identify the eligible employees. Once the eligible employees are identified, the scheme of ESOP is prepared in favour of the identified employees.

2. BOARD MEETING

Conduct the Board Meeting and approve the scheme. In the same meeting, the notice calling Extra-ordinary General Meeting (EGM) is sent to take approval of the members for Issue of ESOP. The following disclosures should be made in the Explanatory Statement:

the total number of stock options to be granted;

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

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

the requirements of vesting and period of vesting;

the maximum period within which the options shall be vested;

the exercise price or the formula for arriving at the same;

the exercise period and process of exercise;

the Lock-in period, if any

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

the method which the company shall use to value its options;

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

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 employee; and

a statement to the effect that the company shall comply with the applicable accounting standards

3. EXTRA-ORDINARY GENERAL MEETING

The Issue of ESOP by Unlisted Companies require approval of members by Special resolution. Conduct the EGM and pass Special Resolution to approve the scheme.

4. APPROVAL OF SCHEME

The scheme is approved once it gets approval of Board of Directors and members.

5. FILE MGT-14

File form MGT-14 within 30 days of passing Special Resolution.

6. GRANT OF OPTIONS

Once the scheme is approved, the options are granted to the employees.

7. VESTING PERIOD

The gap between grant of option and vesting of option should be minimum 1 year. This period is known as the Vesting period.

8. EXERCISE OF OPTION

After the end of vesting period, the employees can exercise their options under the scheme.

9. REGISTER OF ESOP

The company is required to maintain a register in form SH_6 for the ESOP approved. The company should maintain the details of all the options granted in the register.

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