FAQ
  • FAQ on Company
  • FAQ on Employee
What is a Stock Option?
It is one of the way by which a company may reward its employees by granting them an option or choice to buy the shares of the company. Under this the employees have an option to buy the shares in the future date at the predetermined price which is generally lower than the market price.
 
Can stock option be used for improving the performance of the company?
Stock options may help in creating the sense of ownership. Here the sense of ownership means the employee is encouraged to think and acts like the “OWNER” and the vision of being an owner shall encourage the employees to focus on the goal of the organization and shall ultimately improve the performance of the company.
 
Why the stock option is regarded as the beneficial offer for the employees?
This option is to be treated as the opportunity for the employees, because it gives a right but not the obligation to the employees to purchase the shares at the pre determined price. In case the employee finds that at the future date that the price at which option is to be exercised is lower than the market value then the employee shall exercise the option and in other case employee does not exercise the same.
 
If any person has stock options, does it means that he is the holder of the shares?
No the options are not like the owning of the shares, but it is only a right to buy the shares. He shall become shareholder only after the right is exercised in respect of those shares.
 
What is Vesting Period?
Vesting Period is the period on the completion of which the option to buy the shares could be exercised.
 
What is exercise in regard to the stock options?
The activity of converting the options to buy the shares into being the holder of the shares shall be regard as the stock option.
 
What is the exercise price?
Exercise price is the price which the employee has to pay to convert his option given by shares of the company .
 
What is exercise period?
This is the period within which the option to purchase the shares can be exercised. This period shall start from the date of vesting. This period is always defined under scheme.
 
What is lapse of options?
Option may be said to be lapsed on the expiry of the exercise period or on the happening of the events like separation, abandonment etc.
 
What are the laws governing the ESOP?
(i) Companies Act, 2013, read with Rules under Chapter IV of the Act.
     (ii) SEBI (Employee Stock Option Scheme & Employee Stock Purchase Scheme) Guidelines, 1999.
 
Who are the persons eligible for the ESOP?
i. a permanent employee of the Company working in India or out of India; or
     ii. a Whole-time Director of the Company; or
     iii. an employee as defined in (i) and (ii) above, of the subsidiary companies of the Company in India or out of India but does not include:-
         a) An employee who is a promoter or a person belonging to the promoter group;
         b) Independent Director of the company;
         c) A director who either himself or through his relative or through any body corporate, directly or indirectly, holds more than 10% of the outstanding equity shares of the company.
 
What are the instruments which could be issued under the ESOP?
The instruments eligible to be issued under the ESOP shall be determined by the scheme so approved by the company and the relevant provisions of the articles of association of the company.
 
Is there is any requirement of the lock-in period under ESOP?
There is no requirement of lock-in, post allotment of shares pursuant to exercise of options, however, there shall be a minimum period of one year between grant and vesting of options.
 
Whether the option under the scheme is transferable or not?
Option granted to an employee shall not be transferred to any person.
 
Does the option granted to the employee could be pledged?
Unless the scheme of ESOP or the articles of the company otherwise provides, any option granted to the employee under the scheme of ESOP cannot be pledged, hypothecated, mortgaged or otherwise alienated in any other manner.
 
Is there is any requirement of the disclosure of ESOP in the director’s report by the unlisted public company?
The Board of directors, shall, inter alia, disclose in the Directors’ Report for the year, the following details of the Employees Stock Option Scheme:
      (a) options granted;
      (b) options vested;
      (c) options exercised;
      (d) the total number of shares arising as a result of exercise of option;
      (e) options lapsed;
      (f) the exercise price;
      (g) variation of terms of options;
      (h) money realized by exercise of options;
      (i) total number of options in force;
      (j) employee wise details of options granted to;-
      (i) key managerial personnel;
      (ii) any other employee who receives a grant of options in any one year of option amounting to five percent or more of options granted during that year.
      (iii) identified employees who were granted option, during any one year, equal to or exceeding one percent of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant;
     
 
Does the employees working abroad are eligible for the scheme of ESOP?
Unless the articles of association of the company or the ESOP scheme provides otherwise, an employee working abroad shall be eligible under the ESOP scheme.
 
Does part time directors are eligible for the scheme of ESOP?
Unless the articles of association of the company or the ESOP scheme provides otherwise, the part time directors shall also be eligible for the issue of shares under the ESOP scheme.
 
Can a holding company issue shares under ESOP scheme to the employees of its subsidiary company?
Unless the articles of association of the company or the ESOP scheme provides otherwise, a holding company may issue shares to the employees of its subsidiary company under the ESOP scheme.
 
There is a remuneration committee in our company; do we still need to constitute a compensation committee?
Unless the ESOP scheme or the articles of the company provides otherwise, the remuneration committee and compensation committee can be one.
 
Whether a company can vary the terms of ESOP, after its implementation?
If the scheme or the articles of the company provides for the same, any terms of the unexercised options may be varied by the company after complying the requirements as specified by the scheme read with the articles, however in general a company may vary the terms by passing the special resolution in the general meeting of the company.
 
Whether guidelines for preferential allotment prescribed by Govt will be applicable to shares allotted under ESOP Scheme?
No. the guidelines as prescribed by the government for preferential issue are not applicable on the shares to be issued under ESOP.
 
Whether shares under ESOP can be allotted in physical mode or it can only be allotted in electronic form?
Under the Act there are no specific provision prescribing that the shares shall be in the physical mode or in the demat form. So it is the discretion of the company to either issue the shares in physical form or in demat form.
 
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