Issue of ESOP shares under FEMA


                              Issuing shares is a very important way of raising capital for a company. Company also issues bonus shares and right shares to its shareholders as a way of appreciation for investing in their company, issuing shares under stock option scheme is also a way of issuing shares for giving appreciation to their employees. It’s a scheme company incorporates to which is beneficial to both company and its employees.


                                                                                  This scheme is an employee benefit scheme, in this scheme employees cam subscribe to the shares of the company they are working with. Company enables its employees to buy shares at the lower price than market price.


  1. to makes employees more committed towards company.
  2. To give appraisal to the employees.
  3. To get chance to sell off companies shares.


  1.  It acts as a source of motivation for employees who will be benefiting when the prices of the company shares rise in the market.
  2.  It helps to retain employees in the organisation
  3.  Employees are benefited for the hard work they perform in trying times.
  4.  It helps in preventing a significant amount of cash outflow from the company.


1. Preparation of list of eligible employees for ESOP Advertisement This is the first step and basic step required for ESOP scheme. Employees should be carefully selected for participation in ESOP scheme after considering his/her experience, roles and responsibility etc.

 2. Preparation of ESOP policy It is the most important step for Companies. Following are essential things that must be kept in mind while drafting ESOP policy: Quantum of ESOP pool; Employees Selection and evaluation criteria for participating in the scheme; Rights of option holders; Rights of shareholders like Tag along, drag along and pre-emption rights; Exit mechanism; Tax liabilities.

3. Board Approval After preparation of list of eligible employees, quantum of options, drafting of ESOP scheme, next step is to convene a Board Meeting for final board approval. Board has to approve list of employees participating in the scheme, draft ESOP scheme, notice of general meeting for approval of shareholders.

4. General Meeting Advertisement General Meeting of members of the company will have to convene for their approval of ESOP scheme by Special Resolution. However, Only Ordinary Resolution in required for issue ESOP by Private Limited Company.

5. Filing of Form MGT-14 E-form MGT-14 must be filled by all the companies (Except Private Limited Company) attaching Special Resolution for approval of Scheme, Explanatory Statement, Notice of GM, and approved ESOP policy.

6. Preparation & Dispatch of Grant Letter After approval of shareholders, Company needs to send Grant Letter to all the eligible shareholders to participate in the scheme mentioning their entitlement, vesting schedule, date of vesting, last date up to which exercise can be made, exercise price, manner of exercise of options and other terms and conditions.

7. Vesting of ESOPs Advertisement There must be minimum 1 year time gap in between granting of option and vesting of option. For e.g.: If you grant the option on 01st April, 2019, it can’t be exercised before 01st April, 2020.

8. Exercise of ESOPs After completion of vesting period, employees can apply for shares or further wait up to the last date on which exercise can be made or not apply for the shares. ESOP grants only right and not obligation to employees for purchase of shares.

9. Allotment of Shares If shareholders apply for shares, companies need to allot the shares and file e-form PAS-3 for allotment of shares by attaching Special or Ordinary Resolution for approval of ESOP, Resolution for allotment of shares, list of allottees etc. Advertisement

10. Issue Share Certificate & Payment of Stamp Duty Company need to issue share certificate to the shareholders within 30 days after allotment. Companies need to pay stamp duty on issue of shares according to the stamp rates prevailing in the state.


1) An Indian company may issue “employees stock option” and/or “sweat equity shares” to its employees/directors or employees/directors of its holding company or joint venture or wholly-owned overseas subsidiary/subsidiaries who are resident outside India, provided that:

a. The scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013, as the case may be.

b. The employee’s stock option/sweat equity shares issued to non-resident employees/directors under the applicable rules/regulations are in compliance with the sectoral cap applicable to the said company.

c. Issue of employee stock option/sweat equity shares in a company where foreign investment is under the approval route shall require prior approval of the Foreign Investment Promotion Board (FIPB) of the Government of India.

d. Issue of employees stock option/sweat equity shares under the applicable rules/regulations to an employee/director who is a citizen of Bangladesh/Pakistan shall require prior approval of the Foreign Investment Promotion Board (FIPB) of the Government of India.



Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.


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