ESOP Management

Governed by Section 62(1)(b), Companies Act 2013, read with Rule 12, Companies (Share Capital and Debentures) Rules 2014, for unlisted and private companies (a listed company's ESOP is additionally governed by the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations 2021). Rule 12 requires a minimum vesting period of one year from the date of grant before any option can vest, and the option itself is non-transferable until exercised, when it converts into equity shares. Approval route: private companies may authorise an ESOP scheme by ordinary resolution under an MCA exemption notification, whereas public companies require a special resolution under Section 62(1)(b) read with Rule 12(1). Rule 12(1) excludes promoters and directors holding more than 10% of the equity share capital from eligibility to participate — except where the company qualifies as a "startup" under the applicable DPIIT notification, in which case this exclusion is relaxed for a period of up to 10 years from the date of the company's incorporation.

ESOP management is the administration of employee stock option plans across their life — grant, vesting, exercise, and the record-keeping that ties the equity to the employee. The statutory framework: the grant of employee stock options by a company is governed by Section 62(1)(b) of the Companies Act 2013, the scheme and the resolutions are filed with the Registrar in the prescribed forms, and the tax treatment of the benefit follows the Income Tax Act — the perquisite value of the options taxed under Section 17(2)(vi) at exercise (VERIFY: the current ESOP perquisite provisions and the deferral positions).

For a company with an ESOP pool, the management burden is continuous and unforgiving. Vesting schedules must be tracked per employee, exercises must be recorded, the option ledger must match the cap table, and every event — a resignation mid-vesting, a forfeiture, a repurchase — must be documented. A plan whose records drift from the cap table creates exactly the kind of dispute that surfaces at the next round or the next exit.

The failures are quiet until they are loud. An employee who exercised options but was never allotted finds the gap at the sale; a founder who granted options verbally but never filed the scheme discovers the pool does not exist legally; a departing employee's forfeited options come back to the pool without the paperwork — each is a cap-table defect with a tax and legal tail.

This service is for companies running ESOP plans. We manage the option ledger and vesting schedules, process grants and exercises with the Section 62(1)(b) and filing mechanics, coordinate the SH-6 and allotment records, handle forfeitures and repurchases, and keep the ESOP records aligned with the cap table and the tax positions of the employees.