ESOP issue

Employee Stock Options Plans (ESOP) means the stock option provided to the employees, directors, or officers of a company or of its holding company or a subsidiary company. Through this, the employees, directors, or officers are given benefits to purchase or subscribe shares at a predetermined price at a future date. An employee Stock option Plan is a scheme where a company having a share capital proposes to increase its subscribed capital by the issue of further shares to the employees of the company at a predetermined rate.

The law to issue stock options is governed by Section 62(1)(b) of the Companies Act 2013 and by Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014. Three terms have to be looked at by the companies while considering the issue of ESOPs: granting, vesting, and exercising.

• Granting: Granting of the stock options refers to the issue of stocks to allow the employee. It also refers to the commitment that an employer makes by informing the employee of the eligibility of the available options.
• Vesting: Vesting refers to the right of the employee to apply for the shares granted to him.
• Exercise period: Exercising refers to the actual conversion of the employee’s rights to owning the stock. The period post vesting, during which the employee can exercise the option to buy shares.
• Exercise Price: The pre-determined price at which the employee will buy the shares.

1. Permanent employee of a company irrespective of where he works except the employee who is a promoter i.e who holds shares
2. Directors of a company, whether a whole-time director or not, but excluding an independent director (Director who holds more than 10% shares is not eligible for ESOPS)