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(For Unlisted Company)

Section 2(37) of Companies Act, 2013:

An option of a right, given to personnel as mentioned in the table, to buy the Shares of the Company at a future date and at a pre-determined price:




Directors – Section 2(34)

Independent Directors – Section 149(9)

Officers – Section 2(59)

Promotors – Section 2(69)

Employees – Not Defined in Companies Act, 2013 Refer SEBI (Share based Employee Benefits) Regulation 2014 – Regulation 2(1)(f)

Directors or Director with its relative or through a body corporate or directly or indirectly holding more than 10% of the Outstanding Shares in the Company.

Directors, Officers and Employees of Subsidiary Company or holding Company

Section 62 (1) (b):

Where a Company wishes to offer/issue its shares to employees under a scheme of Employees’ Stock Option, an approval of shareholders by way of Ordinary Resolution is required to be obtained.

Rule 12 of “The Companies (Share Capital and Debentures) Rules, 2014”

As per Section 62 and Rule 12

Person Who is an Employee

Person Who is not an Employee

  1. A permanent employee be in India or out side

An Employee who is a promotor or a person belonging to the promotor group

  1. A Director, Whole time Director excluding Independent Director

Directors or Director with its relative or through a body corporate or directly or indirectly holding more than 10% of the Outstanding Shares in the Company.

  1. An employee of subsidiary or holding Company as defined on “a” and “b”

The Notice for Extra Ordinary General Meeting, to convene in order to obtain shareholder’s approval by way of Ordinary Resolution shall make following disclosures:

  1. Total number of stock options to be granted
  2. Identification of class of employees entitled to participate in the ESOP
  3. The appraisal process for determining the eligibility of employees for ESOP
  4. The requirements of vesting and vesting period
  5. The maximum period within which the options shall be vested
  6. The exercise price or formula for arriving at the same
  7. The exercise period and the its process
  8. Lock in period, if any
  9. The maximum no. of ESOPs to be granted per employee and in aggregate.
  10. Method of valuation of options
  11. Condition when ESOPs could lapse
  12. Duration within which employee shall exercise the vested options in the event of termination or resignation of employee
  13. A statement that the Company shall comply with the applicable accounting standard.

The Company granting the option shall have the freedom to determine the exercise price.

However in following cases the approval of shareholders by way of Special Resolution is required to be taken:

a. For grant of option to employees of subsidiary or holding company

b. For grant of option to identified employees, during one year, equal to or exceeding one present of the issued capital of the Company at the time of grant of option.

c. To vary the terms of ESOPs, not yet exercised by the employees, provided such variation is not prejudicial to the interest of option holders. (The notice for the variation shall contain all the details & rationale of variation and beneficiaries of such variation)

Grant of Option (Minimum period of One year between these two options) Vesting of option

Important Point:

1. If a Company merges with another Company and the earlier Company has given ESOPs to a person in lieu of the ESOPs of another Company. In that situation the period during which the ESOPs of earlier Company were held is to be adjusted against the minimum vesting period.

2. The Company has the freedom to specify the Lock-in-period for issued shares under ESOP.

3. The Employees will not enjoy any right similar to members till the time shares are issued on exercise of option.

4. Any amount payable to employees at the time of grant of option:

a. May be forfeited by the Company of the option is not exercised by the employees within exercise period: or

b. May be refunded to employees if the options are not vested because of non-fulfilment of ESOP conditions

Options shall not be transferable to anyone

Options shall not be pledged, hypothecated, mortgaged or otherwise encumbered in any manner

Only Employee shall exercise the option granted to him except:

- If employee dies while in employment, all the options granted to him till date shall vest in the legal heirs or nominees of deceased employee

- If the employee suffers permanent incapacity while in employment then all options granted to him as on date shall vest in him on that day.

In the event of resignation or termination of employment of the employee all option not vested shall expire. However employee can exercise the vested options subject to the terms of the scheme.

In Director’s Report following details with respect to ESOP shall be mentioned:

a. Options granted (A stock option grants the employee the right to purchase a certain number of shares of the company's stock at a predetermined price. This price is called the grant price.)

b. Options vested (an employee must wait in order to be able to exercise ESOPs. Exercise of ESOPs, where the employee notifies the company that he or she would like to buy the stock, allows the employee to buy the referenced shares at the strike price indicated in the ESOPs options agreement.)

c. Options exercised (Exercising a stock option means purchasing the issuer's common stock at the price set by the option (grant price), regardless of the stock's price at the time you exercise the option.)

  • the total number of shares arising as a result of exercise of option
  • Option lapsed
  • The exercise price
  • Variation of terms of option
  • Money released by exercise of options
  • Total no. of options in force
  • Employee wise details of options granted to:

- KMPs

- Any employee who receives more than 5% of options granted during the year

- Employees who were granted options of more than 1% of total issued capital during any one year

- Company to maintain ESOP Register in SH-6 form, which shall be maintained at the registered office and the entries shall be authenticated by the CS or the authorized person as authorized by the Board.


Published by

Raman Singh
(Deputy Manager)
Category Corporate Law   Report

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