ESOP Scheme and Option Grant Letter
An Employee Stock Option Plan (ESOP) is a scheme that grants eligible employees the right to purchase equity shares of the company at a predetermined price, vesting over time. It serves as a retention and reward mechanism, aligning employee interests with shareholder value.
This document set contains the ESOP Scheme and the individual Option Grant Letter for an unlisted company. It is framed under Section 62(1)(b) of the Companies Act, 2013 and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014, and must be approved by a special resolution of the members before any grant is made.
- Governing law
- Companies Act, 2013 + Companies (Share Capital and Debentures) Rules, 2014
- Sections
- s. 62
When this is the right filing
- When an unlisted company wishes to issue stock options to its employees under a board-approved and shareholder-approved scheme.
- When the company needs a compliant plan document that meets the Rule 12 requirements, including a minimum one-year gap between grant and vesting.
- When the company requires a standardised individual grant letter to issue to each participating employee, setting out the specific grant terms.
- Do not use this scheme for a listed company; listed entities must comply with the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, which require a different trust-based structure and disclosures.
What the court looks for
- Approval by a special resolution of the members, passed before any options are granted.
- Disclosure of all Rule 12-mandated particulars in the explanatory statement to the special resolution notice.
- Compliance with the one-year minimum period between the grant of options and their vesting.
- Confirmation that options are non-transferable and that no promoter or director holding more than 10% of equity is included, unless the company is a DPIIT-recognised startup.
The structure the court expects
The components of the filed format, in the order they appear. LexPilot fills every one of them from your facts and papers.
1. OBJECTIVE — The Plan is established to attract, retain, motivate and reward eligible employees by enabling them to participate in the growth of the Company through ownership of its equity shares, in accordance with Section 62(1)(b) of the Companies Act, 2013 and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014.
Bracketed items are filled from your case.
Frequently asked questions
Can a promoter or a director holding more than 10% of shares receive options under this scheme?
Generally, no. Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 excludes promoters and directors holding more than 10% of the equity shares from participating in an ESOP of an unlisted company. An exception exists for certain startups recognised by the DPIIT, whose eligibility should be confirmed before making a grant.
What is the minimum period between grant and vesting for an unlisted company ESOP?
Rule 12 mandates a minimum gap of one year between the grant of options and their vesting. The scheme and the individual grant letter must reflect this vesting schedule.
Is a special resolution always required to approve this ESOP Scheme?
Yes. For an unlisted company, the ESOP Scheme must be approved by the members through a special resolution passed at a general meeting. The notice for this meeting must include an explanatory statement containing the disclosures specified in Rule 12.
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