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ESOP for the Private Limited Company

CA Pradeep Kumar Rajput 
on 23 February 2018

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Yes, the private limited company can issue ESOP to its employees, subject to the limitation of the maximum number of shareholders. If the number of shareholders after allotment of share under ESOP exceed the maximum number of shareholders for the private limited company then the private company must be converted to the public limited company before the issue of such shares.

Section 61 of the Companies Act 2013 and Rule 12 of the companies (Share Capital and Debenture rules 2014, enable a private limited company to Grant the ESOP to its employees. Subject to authorization of in the article of the company.

If the total shareholders after allotment of share in the ESOP scheme reach 200 or more then the company shall convert itself to the public limited company.

If AOA is salient on the issue of share to employees under the scheme of ESOP, then article shall be amended, also if the MOA does not have the adequate authorized share capital then MOA shall also be amended.

Following are the procedure to amend the memorandum and article of the company and approval of the ESOP scheme:

  • Draft the new Memorandum of Association (MOA) and the Article of Association (AOA) (Annex-1).
  • Draft the ESOP scheme (Annex-2).
  • Draft the resolution to be passed in the board meeting (Annex-3).
  • Draft the resolution to be passed in the EGM (Annex-4).
  • Draft the Notice of the EGM (Annex-5).

Send the notice of the meeting to all the directors

There is no time limit in the law to send the notice of the board meeting. However as per the secretarial Standard-1 on board meeting notice should be given at least 7 days prior to the board meeting.

1. Hold the meeting of the board of director of the company and following action shall be taken in the board meeting:

  • Approve the drafted MOA and AOA by passing the resolution in the meeting.
  • Approve the ESOP Scheme.
  • Approve/finalize the time and place of EGM.
  • Approve/finalize the notice of EGM.

2. Prepare the Minute of the board meeting.

3. Hold the EGM and conduct the following business:

  • Pass the resolution of the amendment of MOA and AOA.
  • Obtain the shareholder’s approval for the ESOP scheme by passing the resolution.

4. Complete the ROC filing within 30 days on the EGM.

5. Identify the employees to whom ESOP has to be given.

6. Issue of share as per the scheme vesting period and the option exercise by the employee.

7. Payment of stamp duty on the issue of shares.

8. Regular ROC filing for the issue of share (within 30 days of the share allotment).


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