Based on the general and primary queries of numerous unlisted companies and our clients who approach India Juris for formulation and implementation of ESOP and other Employee Benefit Plans,we have prepared this paper to provide initial knowledge about such ESOP. This document should not in any manner be construed as legal advice.
Issuance of sweat equity shares or formulation and implementation of Employee Stock Option Plan or Scheme “ESOP” or “ESOS” by Unlisted Companies (public or private) is primarily governed by the relevant provisions of Companies Act, 1956 ”Act” and Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003 “Rules” issued under Companies Act, 1956.
In India the unlisted company cannot issue sweat equity shares (shares under ESOP) for more than 15% of total paid up equity share capital in a year or shares of the value of 5 crores of rupees, whichever is higher except with the prior approval of the Central Government. Sweat equity shares issued to employees or directors shall be locked in for a period of three years from the date of allotment. The price of sweat equity shares (shares under ESOP or such Plans) to be issued to employees and directors shall be at a fair price calculated by an independent valuer.
