Employees stock option means the option given to the directors, officers, or employees of a company which gives such directors, officers or employees, the benefit or right to purchase, subscribe to the shares of the company at a future date at a predetermined price.
A company may issue shares to its employees under employees’ stock options, subject to a special resolution passed by the company. In the case of private companies, an ordinary resolution is sufficient.
Procedure to issue “Employees Stock Option Plan”
(1) Convene a Board Meeting to approve the notice of the General meeting along with special
the resolution, explanatory statement, etc., to be approved by the shareholders through a special
resolution. In the case of a private company, an ordinary resolution is sufficient.
(2) Ensure that the company has made the following disclosures in the explanatory statement annexed to the notice for the passing of the resolution-Ensure that the special resolution is filed with ROC in MGT 14 within 30 days of passing the resolution.
(3) The companies granting Employees Stock Option Scheme to its employees will have the freedom to determine the exercise price.
(4) Approval of shareholders by way of separate resolution is required in case of-
- (a) Grant of Employees Stock Option to employees of a subsidiary or holding company.
- Grant of Employees Stock Option to identified employees, during any 1 year, equal to or exceeding 1% of the issued capital of the company at the time of grant of the option.
(5) Company may by special resolution, vary the terms of Employees Stock Option Schemenotyet exercised by the employees provided such variation shall not be prejudicial to the interests of the option holders. Notice for passing the special resolution for variation of terms shall disclose full of the variation, the rationale, and the details of the employees who are beneficiaries of such variation.
(6) There shall be a minimum period of one year between the grant of options and vesting of options.
(7) The amount, if any, payable by the employees, at the time of grant of the option may be forfeited by the company if the option is not exercised by the employees within the exercise period or the amount may be refunded to the employees if the options are not vested due to non-fulfillment of conditions relating to vesting of option as per the Employees Stock Option Scheme.
(8) The option granted to employees shall not be transferable to any other person. The option shall not be pledged, hypothecated, mortgaged, or otherwise encumbered or alienated in any other manner.
In the event of the death of an employee while in employment, all the options granted to him till such time shall vest in the legal heirs or nominees of the deceased employee. In case of permanent incapacity of an employee during the employment, all the options granted to him as on the date of permanent incapacitation shall vest in him on that day.
In case of resignation or termination of employment, all options not vested in the employees on that day shall expire.
(9) The details to be disclosed in the Board of directors should be ensured.
(10) The company shall maintain a Register of Employee Stock Options in Form No. SH.6 and shall
enter therein the particulars of option. Such registrar shall be maintained at the registered office or such other place. The entries in the register shall be authenticated by the company secretary (CS) of the company or by any other person authorized by the Board for the purpose.
(11) Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar Are turn of allotment in Form PAS.3, along with the fee.
(12) Deliver the share certificates of allotted shares within a period of 2 months from the date of
(13) Intimate the details of allotment of shares to the Depository immediately on allotment of such shares.
(14) Where the equity shares of the company are listed on a recognized stock exchange, the EmployeesStock Option Scheme shall be issued, in accordance with the regulations made by the Securities and Exchange Board of India (SEBI).