Implementing an ESOP (Employee Stock Option Plan) scheme involves a series of legal and secretarial steps under the Companies Act, 2013. To make it simple, the process is divided into two phases: Setting up the Pool and Granting the Options.
Service: ESOP Implementation & Advisory
Implementing an ESOP is about more than just paperwork; it’s about creating a structure that motivates your team while keeping your cap table clean. We handle the entire process, ensuring your scheme is compliant with Section 62(1)(b) and Rule 12 of the Companies Rules.
Phase 1: Setting up the ESOP Pool
Before you can give options to employees, you must legally “create” the pool of shares.
Drafting the Scheme (Legal/CS): We draft your ESOP Policy, which includes the “Golden Rules”:
The Cliff: The minimum 1-year waiting period required by law before any options can vest.
Vesting Schedule: How the shares are earned (e.g., 25% every year for 4 years).
Exercise Price: The fixed price employees will pay to buy the shares.
Board Approval (CS): We conduct a Board Meeting to approve the draft scheme and the size of the ESOP pool (usually 5–15% of the company).
Shareholder Approval (CS): You must pass a Special Resolution (75% majority) in an Extraordinary General Meeting (EGM) to officially adopt the plan.
ROC Filing: We file Form MGT-14 with the Registrar of Companies within 30 days to make the pool legally valid.
Phase 2: Granting & Managing Options
Once the pool is ready, you can start awarding options to specific team members.
Valuation (CA): We obtain a Registered Valuer Report to fix the Fair Market Value (FMV), which is needed for accounting and future tax calculations.
Grant Letters (Legal): We issue individual Grant Letters to employees. This is the legal contract that tells them how many options they have and what their vesting schedule is.
Statutory Register (CS): We set up and maintain the Register of Employee Stock Options (Form SH-6), which tracks every option granted, vested, or cancelled.
Allotment (CS): When an employee “exercises” their vested options, we handle the board resolution for allotment and file Form PAS-3 with the ROC to issue their actual shares.
How long does it take?
Pool Creation (Phase 1): 3–4 weeks (includes the mandatory 21-day notice for the shareholder meeting).
Granting Options (Phase 2): 1 week once the pool is active.
Common Requirements
DPIIT Startup Perks: If you are a registered startup, you can issue ESOPs to promoters and directors holding more than 10% for the first 10 years—a major benefit not available to regular companies.
Eligibility: Only permanent employees and directors (excluding independent directors) are eligible.