Companies Act, 2013--ESOPs

Employee Stock Option Plans (ESOPs) : Temptation for Employees, Directors and Promoters

Pragya Lalwani

ESOPs incentivize employees and directors to work hard for growth of company, they are working with. This article entails the process regarding how a company/entity can retain valuable resources engaged with vision of the company.

1. Introduction

Though there is a massive wave of entrepreneurship in India in last few years, however attracting a good talent and retaining it therein, is a big challenge. To deal with such a situation, ESOPs act as an great catalyst. Employee Stock Option Plan is a form of employee benefit plan wherein hard working employees are paid off by giving ownership stake in the company and founders or directors who have invested their time and effort whole-heartedly for growth of the business are incentivized to maintain their stake in the business. Though the Companies Act, 2013 restricts the grant of ESOPs to promoter director or a person from promoter group, certain relaxations have been given to startups. Here we will discuss the concept of grant of ESOPs to employees and directors including promoters in the unlisted companies.

2. Requirements for issue of ESOPs under Companies Act, 2013

ESOPs have become an effective tool to acknowledge the hard work and efforts of employees and peers. Under Employee stock option scheme, companies offer shares to its employees after complying with certain requirements. Here we will discuss about it in length for companies other than listed companies.

(i) Employee: Definition of