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ESOPs: A new genes under Companies Act 2013


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With the promulgation of Companies Act, 2013, provisions governing issuance of shares by offering Stock Options to the Employees have been recognized under Section 62(1)(b) of the new Act, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014.

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ESOPs: A new genes under Companies Act 2013

  1. 1. ESOPs – a new genes under Companies Act, 2013 Ms. Mohini Varshneya M. No. : +91 9971673332 Email Id: /
  2. 2. What are ESOP?  Employee Stock Option Plan/Equity Incentive Plan (commonly referred to as ESOP) is an employee-owner method that provides a Company's workforce with an ownership interest in the company  ESOPs are one of the most important tools to attract, encourage and retain Employees.  The option granted under the plan confers a right but not an obligation on the employee. Stock options are subject to vesting, requiring continued service over a specified period of time. Upon vesting of options, employees can exercise the options to subscribe to the Company’s shares, by paying the pre- determined exercise price.  Extending benefits through ESOPs is like creating a win-win situation for both Employer & Employee.
  3. 3. Restructuring modes under ESOP Stock Options (Sharing in the Capital of the company) Employee Stock Option Scheme (ESOS) Employee Stock Purchase Plan (ESPP) Restricted Stock Units (RSUs) Stock Indexed Plans (No sharing in the Capital of the Company) Stock Appreciation Rights (SARs Phantom Stocks
  4. 4. Scenario under ERSTWHILE Companies Act, 1956  Provisions related to ESOPs were not documented.  Allotment to the Employees was considered under the ambit of Section 81(1A) related to issuance of shares. There was no other Regulatory framework for Unlisted companies. However, Listed Companies were been regulated by SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
  5. 5. ESOPs- Now covered under the ambit of Companies Act, 2013 Unlisted Companies Listed Companies Regulated by Section 62(1)(b) of the Act read with SEBI (ESOS and ESPS) Guidelines, 1999 Regulated by Section 62(1)(b) of the Act read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014. Scenario under New Companies Act, 2013
  6. 6. Highlights of Rule 12 of the Companies (Share Capital and Debentures) Rules 2014.  Approval from Shareholders via Special Resolution  Permanent Employees of Company, Holding Company, Subsidiary Company and Associate Company can be covered.  All Directors excluding Promoter Directors and Independent Directors can be covered under the ESOP Plan.  Freedom to determine Exercise Price.  Freedom to determine lock-in period.  Separate resolution to be passed in case of grant to employees of holding/subsidiary company.  Explanatory statement shall disclose material details as prescribed.
  7. 7. Highlights of Rule 12 continued…………  Mandatory Annual disclosures in Directors Report.  Minimum period of one year between grant and vesting of options.  Options granted cannot be pledged, hypothecated or otherwise transferred.  In case of death, all options granted shall vest in the legal heirs.  In case of resignation, all unvested options shall lapse.  Register to be maintained as per format prescribed by ROC.
  8. 8. ROUTES under ESOp Trust Route Fresh allotments of the Equity shares of the company are made to employees, as and when they Exercise the Options. Direct Route The Company forms an Employee Welfare Trust for administration of the ESOP wherein the Company issues shares to the Trust for onward transfer to the Employees upon Exercise of Options
  9. 9. As per NEW companies act, following Are not covered under THE ambit of trustees Directors Key Managerial Personnel Promoter of he Company Or any relative of such Director, Key Managerial Personnel or Promoter Beneficial owner holding 10% or more of the paid-up capital
  10. 10. Regulatory framework for PROVISIONING OF MONEY BY COMPANY to EMPLOYEE WELFARE TRUSTS • Companies Act, 2013 allows Companies to make provision of money involving purchase or subscription of its own shares or shares of holding company subject to the compliance of the following stipulations:  The scheme of provision of money to be separately passed by the Shareholders.  Value of the Shares in the Trust shall not exceed 5% of the aggregate of paid up capital and free reserves of the company.  Valuation of the shares purchased by the Trust is to be made by the Registered Valuer in case of Unlisted Companies.
  11. 11. About us is a venture promoted by Corporate Professionals Group, which is best illustrated for providing widest spectrum of corporate services at one stop. We are recognized as a destination where all paths in hunt for corporate solutions end. Through our strong foundations and robust growth, we have emerged as leading corporate advisors attaining an edge in providing services at internationally competitive standards. Our diversified team of professionals who have attained expertise in delivering supreme corporate services utterly justifies our name, Corporate Professionals.
  12. 12. OUR OFFEREINGs Planning / Designing / Documentation Implementation / Employee Communication Administration ESOP Accounting & Valuation ESOP Trust Formation Statutory Compliances Opinion / Advisory
  13. 13. Our value added service We at Corporate Professionals, provides a comprehensive solution for all ESOP related needs of any Company. Our Web Application, is specifically designed by keeping in view the regulatory framework under which ESOPs Function.
  15. 15. For further clarification, please visit Corporate Professionals, D-28, South Ex-Part-1, New Delhi - 110 049, India, (B): +91 11 40622231 | (D): +91 11 40622200 | (F): +91 11 40622201 | (e)