Employee Stock Option Plan (ESOP)

Employee Stock Option Plan (ESOP) is an employment scheme for the benefits of an enterprise's employee. Under the ESOP scheme, the employees are encouraged to acquire ownership of the company in form of shares for their commendable services. The shares are given to the employees at a lesser rate than the market price of those shares. 

A business that wishes to implement the ESOP scheme for its employees needs to have an ESOP policy for the employees. The ESOP policy states the terms and conditions, eligibility, price of shares, etc. An ESOP policy acts as the legal documentary proof that the employees will be rewarded for their performance and creates trust in the employers. Having an ESOP policy encourages employees to focus on the company goals rather than their individual goals and creates a sense of ownership in the employees.

Draft Your ESOP Scheme Online
At INR 24999

What You'll Get In The Package

Inclusion

  • Drafting of the employee stock options policy (ESOP).
  • Drafting of the board meeting notice and agenda. 
  • Drafting of the board resolution where policy will be adopted.
  • Drafting of shareholders' resolution to adopt the policy.
  • Drafting the employee Grant letter with vesting schedule. 
  • Drafting the employee exercise letter.

Exclusion

  • Updating any employment agreement with ESOP clause.
  • Updating the ESOP register.
  • Any other legal or accounting work.

Documents required for drafting an ESOP

  • Information regarding the employer and the employee.
  • Information regarding the shares and eligibility for the scheme.
  • Any additional information that may be specific to your needs or needed by the lawyer.

Procedure for drafting an ESOP Scheme

After receiving the requisite information, the lawyer will draft the ESOP Scheme for your company. The draft of the ESOP scheme will be shared with you for your approval or suggestions for any changes. Once the changes are made, if any, and the scheme is approved, the documentation lawyer will send the final draft of the employee stock ownership plan.

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FAQs

What are the laws relating to ESOP scheme in India?
The SEBI Act, the Income Tax Act and the Companies Act, 2013 regulate different aspects of ESOP in India.
How does the ESOP benefit the company?
Employee ownership improves employee morale and productivity and creates a sense of title in employees. Employees focus on the company's objectives rather than focusing on personal goals.
If I have Stock Options does that mean I own shares?
The Options are not actual Shares, but a right. They become Shares when the right is exercised and shares are purchased.
What is the Exercise price?
The exercise price is the rate at which the employees can exercise their ESOP scheme benefits and purchase the shares of the company.
Who can companies grant ESOPs to?
All permanent employees and directors of a company are eligible for ESOPs. The company can formulate and identify the employees, seniority, performance standards, etc. for grant of ESOPs.
Who are not eligible for ESOPs in India?
Independent directors, shareholders with more 10% share are not eligible for ESOPs. Consultants or advisors are kept also outside the bracket of ESOP.
What are the types of ESOPs?
The different types of ESOPs are: 1. Employee Stock Purchase Plan (ESPP) 2. Employee Stock Option Scheme (ESOS) 3. Phantom Equity Plan(PEP) / Stock Appreciation Right (SAR) 4. Restricted Stock Unit (RSU) 5. Restricted Stock Award (RSA)
Why do I need a lawyer for drafting my ESOP plan?
As the ESOP scheme in India is governed by different laws, it is better to hire a lawyer to do the documentation work for the ESOP plan. The lawyer will make sure that no provisions of law are contravened and the policy is made in accordance with the law.