Steps to issue esop in a pvt. ltd co.

ESOP IN UNLISTED PUBLIC COMPANY AND PRIVATE COMPANY

Here I am starting with ESOP for private companies because there are lots of information available for ESOP by listed public companies but least available for private companies or unlisted public companies. In today’s economic scenario of india most of the small or new entrepreneurs are getting funding from strategic investors by entering into shareholders agreement, and as a part of it they agree to offer shares to their employees and that’s how a small company i.e. a private company or an unlisted public company offers ESOP.

Checklist for issue of ESOP in private company or unlisted public company:

1.       Formation of Compensation Committee;

2.       Authorisation to compensation committee for drafting ESOP scheme;

3.       Compensation Committee will draft the scheme and present it to the board for their approval

4.       After approving the scheme board will call EGM for approval of scheme by Shareholders;

5.       Approval of ESOP Scheme by Shareholders

6.       After approval of ESOP scheme by the shareholders Compensation Committee will grant options to the eligible employees;

7.       Vesting of Option;

8.       Exercise of Options;

9.       Allotment of Shares.

Resolution for issue of ESOP in private company or unlisted public company:

"RESOLVED THAT pursuant to the provisions of Section 81(1A) and all other applicable provisions, if any, of the Companies Act 1956, and of the Memorandum and Articles of Association of the Company the consent of the Company be and is hereby accorded to the Scheme of Employees Stock Option Plan, 2012 (hereinafter referred to as the "ESOP 2012") and the Compensation Committee of the Company be and are hereby authorised to grant stock options and that the Board is authorised to issue and allot in one or more tranches under the said ESOP 2012 at any time for the benefit of the present and future eligible employees of the Company (except the promoters & directors) such number of equity shares or securities convertible into equity shares as may be appropriately provided.

RESOLVED FURTHER THAT the issue of securities to any non-resident indian employee(s) of the Company shall be subject to such approvals, permissions or consents as may be necessary from Reserve Bank of India or any other relevant authority in this regard.

RESOLVED FURTHER THAT the new equity shares to be issued and allotted by the Company in the manner aforesaid shall rank pari passu in all respects with the existing equity shares of the Company.

RESOLVED FURTHER THAT the Board of Directors of the Company be and is hereby authorised to do all such acts, deeds, matters and things as it may in its absolute discretion deem fit or necessary or desirable to give effect to the aforementioned issue under ESOP.”
 

Thanks Mr. Mishra for your very valuable reply.

However there were some points which i had read and would require your response:

           1.  Do i need to calculate the share price by an independent valuer?

           2.  Does issue of such shares have a lock in period?

           3. Do i require auditors certificate that the share issued under ESOP has been alloted in accordance with                  the rules?

           4. Do i need to conduct a shareholders meeting and provide them an explanatory statement?

               Kindly pl. throw some light on the above queries.

               Thanks & Regards,

                Hatim.

Hi

Yes, It si required for ESOP.

Hi,

Do I need to change AOA for issuing ESOP.

How much maximum ESOPs can be issued by a private limited company in one year???