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 permanent employees of the company. 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 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. Still, 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.
• Notice of the passing of such a resolution should be given seven days before the actual board meeting.
• The price related to the issuance of the employee stock option plan and the date and time of approval are fixed in the board meeting.
• The next step is to send the draft minutes to all the company’s directors within 15 days. After passing board resolutions to the registrar of companies, you are also expected to file the MGT 14 form.
• The next step involves hosting a general meeting, for which you must send an invite at least 21 days before the actual date of the meeting. The invitees to this meeting include the company’s director, auditor, secretary, auditors, and shareholders.
• 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 company’s officers, directors, and employees if they are interested in purchasing employees’ option plans.
• Once the information is delivered, you need to maintain a register that accounts for all the issuance of employee stock option plans.
• If any private companies are interested in purchasing employees’ stock option plans, we have to make sure that we have added the close of purchase in your article of association. Without this, you cannot proceed with withholding the board meeting or issues of the employee stock option plan.

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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, companies are made eligible for the issuance of an employee stock option plan. It can be one way they provide incentives to their employees, and information is delivered as to when they become eligible for availing of such an 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.

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Conclusion

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

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