ESOP Procedure

This query is : Resolved

CA.Yogita (Querist)
Follow

13 February 2017 What is the procedure for issue of ESOP under companies act 2013? Whether any forms need to be uploaded at mca site as there is increase in share capital also is every time when ever ESOP is issue valuation has to be done?

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
Follow

13 February 2017 Procedure for issue of ESOP in unlisted company:

1. Draft the ESOP scheme.

2. Convene the Board Meeting and pass the scheme.

3. Call the general meeting to approve the scheme by Shareholders. The following disclosure will be made in the explanatory statement annexed to the notice for passing of the resolution-

(a) the total number of stock options to be granted;

(b) identification of classes of employees entitled to participate in the Employees Stock Option Scheme;

(c) the appraisal process for determining the eligibility of employees to the Employees Stock Option Scheme;

(d) the requirements of vesting and period of vesting;

(e) the maximum period within which the options shall be vested;

(f) the exercise price or the formula for arriving at the same;

(g) the exercise period and process of exercise;

(h) the Lock-in period, if any ;

(i) the maximum number of options to be granted per employee and in aggregate;

(j) the method which the company shall use to value its options;

(k) the conditions under which option vested in employees may lapse e.g. in case of termination of employment for misconduct;

(l) the specified time period within which the employee shall exercise the vested options in the event of a proposed termination of employment or resignation of employee; and

(m) a statement to the effect that the company shall comply with the applicable accounting standards.

4. Approve the ESOP Scheme by passing a special resolution (ordinary resolution in case of Private Company). The approval of shareholders by way of separate resolution shall be obtained by the company in case of-

(a) grant of option to employees of subsidiary or holding company; or

(b) grant of option to identified employees, during any one year, equal to or exceeding one percent of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option.

5. File form MGT-14 to submit the special resolution within 30 days of passing the resolution.

6. After approval of ESOP scheme by the shareholders, grant options to the eligible employees.

7. Vesting of Options. There shall be a minimum period of one year between the grant of options and vesting of option.

8. Exercise of Options by the employees;

9. Allotment of Shares. As and when options are exercised file form PAS-3 (Return of Allotment) with ROC.

10. The company shall maintain a Register of Employee Stock Options in form SH-6 and shall forthwith enter therein the particulars of option granted.

In case of increase of increase of authorised share capital you have to file ROC Form SH-7 first then on allotment you have to file ROC Form PAS-3.

The price of shares under ESOP to be issued to employees has to be determined by an independent
valuer every time.

CA.Yogita

CA.Yogita (Querist)
Follow

13 February 2017 Thanks a lot mitesh you have explain step by step in details.. Just one more query is the register to be maintain by private limited company also

Upgrade to CAclubindia Pro. Subscribe Now!

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
Follow

13 February 2017 yes.

Private company need to maintain register

CA.Yogita

CA.Yogita (Querist)
Follow

13 February 2017 ok and valuation is to be done at both time if I am not wrong when option is given and when exercised..

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
Follow

13 February 2017 valuation is done at the time of ESOP grants itself for working out the employee compensation cost, which is apportioned over the vesting period of Esop