All the Intricate Details Involved in the Process of Issuance of ESOP policy

ESOP working is quite different and sometimes a bit difficult to explain to a layman. Employee stock option plans are company stocks that are floated to all the employees of the company who are under permanent employment. Section 62 clause 1 sub-clause b of the Companies Act 2013, rule 12 of Companies Share Capital and Debenture Rule 2014 has issued all the guidelines that are related to the issuance of employee stock option plans.

The Securities Exchange Board of India may be the governing body of ESOP policy in India, but the guidelines issued by these two sections are quite similar to the Securities Exchange Board of India’s employee stock option scheme guideline for listed companies.

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What is the process involved in the issuance of ESOP in India?

The steps to issue an employee stock option plan include:

• You are expected to provide a draught of the employee stock option plan following the rules and regulations of the Companies Act and Share Capital and Debenture Rules 2014.
• After preparing a draught, you’re expected to prepare a notice for the board meeting and a resolution is passed in the board meeting.
• The notice for the passing of such a resolution should be given before seven days before the actual board meeting.
• In the board meeting, the price related to the issuance of the employee stock option plan is fixed along with the date and time of employee stock options plan approval.
• The next step involves sending the draft minutes to all the directors of the company within 15 days. You are also expected to file the MGT 14 form after passing board resolutions to the registrar of companies.
• The next step involves hosting a general meeting for which you have to send an invite at least 21 days before the actual date of the meeting. All the invitees to this meeting include the director auditor secretary auditors and shareholders of the company.
• A special resolution is passed in the general meeting for the issuance of an employee’s stock option plan.
• File the MGT 14 form within 30 days of the special resolution passed in the general meeting.
• After filling out that form, you are expected to send options to all the officers’ directors and employees of the companies if they are interested in purchasing employees’ option plans.
• Once the information is delivered you need to maintain a register that will keep an account of all the issuance of employee stock option plans.
• If any private companies are interested in purchasing employees’ stock option plans, then we have to make sure that we have added the close of purchase of employee stock option plan in your article of association. Without this, you cannot proceed with the withholding of the board meeting or issues of the employee stock option plan.

Ways of allotting Employee stock option plan

There are three main decided ways in which employee stock option plans are distributed amongst employees at the company and they are:

• Grant

Under these head employees, the companies are made eligible for the issuance of an employee stock option plan. It can be one of how they provide incentives to their employees and the information is delivered as in when they become eligible for availing such option. It is at the disposal of employees and their freedom if they are bent towards availing of such a facility.

• Vesting

Under this, an employee approaches the purchasing company and implies a stock option plan. Under this head, there should be at least a one-year difference between the grant and vesting.

• Exercise

Whenever employee stock option plans are floated, there’s a set. Which is given under which all the employees can apply to purchase these stocks. If any employee who is interested in purchasing will apply for buying them else, they have not exercised their option of purchasing these stocks.

There is a lock-in. That is assigned where once you have shown interest in purchasing those stocks later on, you can make the payments when you have money. Employees will not be entitled to any sort of benefit until they make full payment for their locked-in stocks. It’s after the official delivery of stocks that they receive such kinds of benefits.

Conclusion

The process of issuance of employee stock option plans is a lengthy procedure and the Securities Exchange Board of India, company laws and other governing authorities have tried their level best to keep employee welfare at the centre of the policies. Be it a public company or a private company listed or not listed, the option of floating employee stock option plan is fundamental to success for any business organization.

Different types of employee stock option plans, give options to employees on what they want to invest in and where the interest lies the most. Once they have decided on which employees’ stock option plan they are keener on investing in, they can then finalize their options for the betterment of their future in the company.