What is Employee Stock Option Plan (ESOP)?
Employee Stock Option Plan (ESOP) simply means a plan where the company grants options to their employees.
While giving ESOP's option, the selling shareholder and participants obtain numerous tax benefits. It not only keeps worthy employees inspired which helps to grow your company, rather than just accomplish their obligations, it guarantees that you don't lose them for a number of years.
It shall apply to any company whose shares are listed on any stock exchange in India.
Advantages of ESOP
- Attract Top Talent
you may not be able to match their current salary, but an offer of shares in your company will be enough to attract the best talent.
- Build Motivation
The better your business performs, the better your most talented employees will get paid. There's no better way to motivate them.
- Keep Them Longer
The employees to whom shares have been allocated are almost certain to complete the two to three years you have defined as vesting period.
Highlights of ESOP
An employee who is a promoter or a part of the promoter group will not be entitled to participate in the Employee Stock Option Plan of the company. A director who holds in excess of 10% of the outstanding equity shares of the company either by himself or through his family or through any investment company, directly or indirectly will not be qualified to take part in the Employee Stock Option Plan
- Shareholder Approval
The ESOP shall be approved by the shareholders by a special resolution.
Other criteria will come into picture like
- Lock-in period, vesting and exercise of options.
- No transferability of stock options.
- Certificate from Auditors to be obtained for the same.
- Preferential Allotment.
Process for ESOP
Process for Employee Stock Option Plan:
- Grant Notice
- Option plan
- Allotment and documentation
- Options agreement
- Business valuation
Time to complete ESOP
Time to complete For Employee Stock Option Plan:
- 30 WORKING DAYS
- Once information is received, the ESOP will be ready to complete in around 4 to 5 weeks.