What is ESOP (EMPLOYEE STOCK OPTION PLAN)?
It is a kind of employee benefit plan which is meant to boost employees to buy shares of the company at a pre-determined price for a certain number of years. ESOPS give a right to employees to purchase shares, but not an obligation to buy shares of the company. Companies utilize this scheme as a means to reward and absorb hard-working employees. These are planned to improve the performance of the employees and the company.
ESOP in Private Limited Company: Eligibility criteria for ESOP:
- A Director of the company whether whole time or not, but excluding Independent Director.
- A permanent employee of the company who has been working in India or outside India
- An employee in India or outside India or of a holding company of the company or an Associate Company
Non-Eligibility criteria for ESOP:
- An employee who is a promoter or belongs to the promoter group
- A Director who is either himself or through his relatives or through anybody corporate directly or indirectly holds more than 10% outstanding equity shares of the company
Features of ESOP:
- No ESOP can be offered to employees of the Company unless it is approved by the shareholders of the company in the general meeting by passing a special resolution with an explanatory statement
- The company has the option to determine the exercise price of the option granting ESOP.
- There must be a minimum period of 1 year between the granting of option and the vesting of the option.
- The company shall have the freedom to specify the lock-in period for the shares issued pursuant to the exercise of the option.
- ESOP allotted to an employee cannot be transferred to any third person.
- Employees may sell the shares, once vested, but cannot transfer the option to buy the shares to any other person.
- Every year the Board of Directors in the Directors Report must report the details of the ESOP Plan.
- ESOP register and other information about the ESOP have to be maintained by the Company.
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