Esop To Incentivize & Increase Productivity Of The Employees

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.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by: CA Neetu Saini

AKGVG & Associates

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