ESOPs Calculation

A private limited company can absolutely issue Employee Stock Options (ESOPs) even if the total number of shares under the ESOP scheme exceeds the current paid-up share capital.

There is no legal requirement that the number of ESOPs must be lower than the current share capital. However, you must ensure that your company has enough Authorised Share Capital to accommodate the future issuance of these shares.

Key Considerations for Your Situation:

1. Authorised Share Capital: The "Authorised Capital" mentioned in your Memorandum of Association (MoA) is the maximum limit of shares the company is legally allowed to issue.

   • If your proposed ESOP pool, when added to your currently issued capital, exceeds your existing Authorised Capital, you must first amend your MoA to increase the Authorised Capital. This requires a separate ordinary resolution and filing Form SH-7 with the Registrar of Companies (RoC).

2. Articles of Association (AoA): Ensure your Articles of Association specifically authorize the issuance of shares through an ESOP scheme. If the AoA is silent, you will need to amend it through a special resolution in an Extraordinary General Meeting (EGM).

3. Special Resolution: To issue ESOPs, you are required to obtain approval from your shareholders via a special resolution under Section 62(1)(b) of the Companies Act, 2013, and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014.

4. Compliance and Filings:

   • MGT-14: File this form with the RoC within 30 days of passing the special resolution for the ESOP scheme.

   • PAS-3: Once employees exercise their options and the company actually allots the shares, you must file a Return of Allotment in Form PAS-3 within 30 days.

   • Register (SH-6): You must maintain a register of employee stock options in Form SH-6.

Summary Checklist for Process:

• Verify/Amend MoA: Ensure sufficient Authorized Capital exists to cover the ESOP pool.

• Verify/Amend AoA: Ensure the company is authorized to issue ESOPs.

• Board Meeting: Approve the draft ESOP scheme and call for a General Meeting.

• General Meeting: Pass a Special Resolution to approve the ESOP plan.

• Filing: File MGT-14 with the RoC.

• Grant & Vest: Once approved, issue grant letters to eligible employees and follow the vesting schedule defined in your scheme.