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ESOP issuance procedure


There are so many schemes which makes great employability system and make their employees eager to do work with passion and interest. As these schemes keep the employees motivated with the things like bonus, incentives, and fame which belongs with the name of company.

So here we are going to know about one of those schemes which is ESOP (employee stock ownership plan) this is the scheme wherein the employee has the right to buy the shares of the company at a discounted price at any future date, the company should be the same in which they are working. The ESOP scheme encourages the employees to work harder and better. The companies always provide the ESOP package to the entire newly hired employee in order to attract the new, fresh and best talent for their best outcomes at the earliest.
Basically the idea behind of this scheme it to enhance the value and share by providing the shares to employee and make them shareholders and being a self vested in the company.

Following is procedure to issue the ESOP: –

ESOP scheme drafting and approval in the board meeting

  • This is the scheme where documents contain these various things given below.
  • ESOP Administration
  • Details of the exercise period and vesting period
  • The size of equity
  • Cessation of the employee

The main motive of the drafting to ensure that scheme has been drafted by the point of view of employee benefit otherwise there is no use of this point as the motive is to attract the top talents or if it will not be followed then the entire purpose will seem to be defeated. And once the drafting will be completed by containing all the terms it will be pass to board of director in the board of meeting to be approved.

Approval in AGM

A notice must have to be send to all the members for the intimation of EGM (extraordinary general meeting) within the stipulated period of time. At this EGM the ESOP scheme will be approved by the shareholders via passing of a special resolution

Filing with registrar of company

The board and special resolution which has been passed in Extraordinary General Meeting is must to be filed with the ROC in the form of MGT-14 within the stipulated time period.

Register maintenance and granting of option

Once the ESOP scheme will approve then the stock options will be starts granted to the employees who are eligible for the scheme. The time period of vesting must be one year from the date of granting. There is the form named by Form PAS-3 is to be filed with the ROC, just at the time of exercising to the employee’s option and there is also a form named by Form SH-6 wherein the register of ESOP is to be maintained.

Benefit of ESOP to startup 

  • Raise the additional equity capital.
  • Refinance the unpaid debt.
  • Enable the more and active participation in the growth of company.
  • Control on company’s cash variability.
  • Attract the prospective talent and retention of existing talent.

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