Employee stock option plan
Definition
According to the Section-62 of the Companies Act, 2013 employee means-
- Permanent employee of the company.
- Director of the company except for the independent director.
- An employee of a subsidiary and holding of a company.
- Except for the person who is anemployee promoter and related to the group of promoters.
Applicability
- Listed companies need to comply with the Security Exchange Board of India (SEBI) regulations and Companies Act 2013.
- The companies which are unlisted need to fulfil the conditions of the Companies Act 2013.
Advantages of ESOP
- Stock options are provided by the company for the benefit of employees of the company.
- It is a kind of incentive thatpromoteshard work and gives motivation to the employee.
- ESOP gives retirement security to the employees which holdsthe company for a long period.
- Employees are not taxed on the amount contributed by the employer to the ESOP.
- ESOP can be used to increase the new equity for the company.
- ESOP gives benefits to both employer and employee and it makesa positive impact on the company in profitability, productivity, and performance.
- ESOP is anattractive benefit to the employee and company.
According to the companies Act, 2013 followings are the conditions:-
- Companies need to make an explanatory statement that contains all the details about the ESOP and pass the resolution in the board meeting.
- Then the company needs to take the approval of the shareholders in the general meeting by passing the special resolution.
- There shall be a minimum period of one year between the grant of option and vesting of the option.
- Grant of option means right to acquire the number of shares of the company.
- Vesting of option means the period until you need to hold the stock option.
- The option grants to the employee which are not transferable to the other person.
- The board of directors disclose the Director’s Report containing the details of ESOP during the year.
- The company maintains the register of ESOP in Form no. SH-7.
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Posted by: CA Neetu Saini