LexStart makes managing your ESOP pool a breeze

The ESOP Portal has been designed to handhold a start up from the point of designing an incentive plan to creating, implementing and managing it end-to-end. Our automated process keeps the Company and the employees informed about the status of their options.

Application Features

Create, track & manage ESOPs

HOW IT WORKS

Our automated process will help you create your Policy and grant ESOPs in no time at all

LEXSTART PACKAGE

Get started with Lexstart package

ESOP Initiation

  • Structuring the ESOP offering
  • Drafting the Employee Stock Option Policy
  • All corporate resolutions
  • Statutory filings under Companies Act 2013

₹ 25,000/-

(exclusive of GST)

ESOP Management

  • Dynamic dashboard
  • Intimation of vesting to employees
  • Assisting with exercise of options
  • Assisting with appropriate steps upon cessation of employment
  • All resolutions and statutory filings under the Companies Act

₹ 6,000/-

(for upto 10 employees exclusive of GST)

Testimonials

What our customers say

Vishal Thakkar

Arpwood Partners

ESOP Program was rolled out in a seamless manner for all the employees

Thank you for all your support in helping us roll out ESOP scheme for SBFC Employees. I understand that we have gone through several iterations leading to rollout of scheme and would sincerely like to thank you for your work ethics, support, patience and follow up to ensure that ESOP Program was rolled out in a seamless manner for all the employees. Things that I have liked about the ESOP Programs are: (a) Online Portal (b) Ease of Information available online as an administrator (c) Quality of data maintenance (d) MIS Reports. It's been a pleasure working with you and I do hope we work together in future"

Arpit Ratan

Signzy

simplified ESOP Policy implementation

They have simplified ESOP Policy implementation and with LexStart’s intuitive app - one needs to answer a handful of critical questions, post which the process is taken care of"

Kartik Desai

Director, Asha Impact

attention to detail

LexStart gave us good advice regarding our structuring options and the process of incorporating the entity was done very smoothly with due attention to detail. Overall we have been quite pleased with their services."

Gaurav Samdaria

Karza

best teams to manage compliances and legal matters

Having worked with LexStart since over a year, we are convinced that they have one of the best teams to manage compliances and legal matters. As a startup, we rarely give much credit to compliances and legal. With LexStart, we could actually see the difference. Having them onboard and work with us made our investor's due-diligence run with ease which could have otherwise been a nightmare and delayed our fund-raising. I would definitely recommend LexStart."

Gaurav Mathur

DigiGold

godsend for anyone starting up

LexStart is a godsend for anyone starting up! They take care of a range of administrative and legal issues which few entrepreneurs will be able to manage on their own. Anisha and Ashutosh are a great sounding board and really help your business as partners as opposed to advisors."

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  • Incorporation Package
  • PAN and TAN Registration
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  • Compliance Package
  • Assistance with board meeting
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  • Allotment of Shares
  • Filing forms with MCA/RBI
  • Issuance of Share Certificate

LexStart on Quora

Which are some good ESOP management firms in India?

We at LexStart assist with creating, managing and granting ESOPs online.

What ESOP/equity do start-ups offer? When can it be exercised, and how?

he quantum of ESOPs/equity in a start up depends on various factors, such as salary being offered by the start up, designation and role of the employee, etc. ESOPs can be exercised only ...

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Blogs & Articles

Frequently Asked Questions

Are employee incentive plans mandatory under the Indian laws?

Stock Incentive Plan in this case refers to ESOPs, ESPPs, RSUs, RSAs, SARs and any other innovative employee incentive plan that a company/ start-up may come up with. It is not mandatory under Indian laws to grant stock incentives including ESOPs, to employees in a private limited company/ start-up.

Having said that, if a private limited company/ start-up decides to grant ESOPs to its employees, it will have to follow the provisions of the Companies Act, 2013.

Most Popular Stock Incentive Plan ESOPs are the most common form of employee incentive plans in India. The same could also be because of the universal acceptance of the concept of stock options/ ESOPs thus giving clarity to how ESOPs work and taxation of the same.

Also from the employee’s perspective, there is more familiarity with stock options/ ESOPs than any other stock incentive plan. Should you implement a Stock Incentive Plan?

Although, it is not mandatory under the Indian laws to implement a stock incentive plan, most start-ups implement a stock option/ ESOP plan. The reason being that, when starting up, attracting and retaining talent is one of the biggest challenges for any startup. In such situations it becomes imperative for a startup to structure and implement a stock incentive/ ESOP plan. Granting stock options/ESOPs to employees gives them an opportunity to have a share in the company, the start-up that they are working so hard to build acts as a great motivator.

Where ESOPs are a great tool to motivate employees, if not implemented on time, they can actually become a cause of disconcert amongst the employees. Imagine a situation where you brought on an employee with the promise of ESOPs and two years down the line, he still hasn’t seen or received any ESOPs. It is therefore important to implement ESOPs as soon as possible.

Why should a company have employee incentive plans?

Most startups face the challenge of attracting talent due to their limitations to pay market-level salaries. ESOPs serve as a good way of supplementing compensation in order to attract talent. ESOPs also allow employees to participate in the growth story of the company/startup, thus incentivizing them further. The benefits of ESOPs or employee incentives are plenty.

But the most important benefits are as follows:

  • (a) Attracting and retaining talent: ESOPs are useful to startups in attracting talent. In its early stages, a company is usually bootstrapping and may not have the resources to pay attractive compensation packages to employees. However, they can use ESOPs or other employee incentive plans to attract and retain good employees as there is no cash outlay involved in the company in such cases.
  • (b) Sense of ownership for the employees: When employees are given ESOPs which eventually convert in to shares of a company in which they are working, it gives them a sense of ownership, thus incentivizing them further.

Where ESOPs are a great tool to motivate employees, if not implemented on time, they can actually become a cause of disconcert amongst the employees. Imagine a situation where you brought on an employee with the promise of ESOPs and two years down the line, he still hasn’t seen or received any ESOPs. It is therefore important to implement ESOPs as soon as possible.

Most Popular Stock Incentive Plan

ESOPs are the most common form of employee incentive plans in India. The same could also be because of the universal acceptance of the concept of stock options/ ESOPs thus giving clarity to how ESOPs work and taxation of the same. Also from the employee’s perspective, there is more familiarity with stock options/ ESOPs than any other stock incentive plan.

What are the different types of employee incentive plans?

The different types of employee incentive plans are as follows:

  • Employee Stock Option Plan (ESOPs)
  • Employee Stock Purchase Plan (ESPP)
  • Stock Appreciation Right/Phantom Equity Plan
  • Restricted Stock Award
  • Restricted Stock Unit

Any Other?

Please do write to us if you have come across any other innovative incentive plan that you would like to use to attract talent and incentivize employees.

ESOPs: Employee Stock Option Plan or ESOPs are options granted to an employee to buy shares of the company (also referred to as exercise of ESOPs) at a predetermined price (also referred to as exercise price of ESOPs), subject to certain conditions, such as active employment with the company over a vesting period and meeting individual or team level performance based milestones.

ESPP: An Employee Stock Purchase Plan allows an employee to acquire shares of the company on a future date, at a price lower than the prevailing market price. In case of Employee Stock Purchase Plan, the employer deducts a certain amount from the employee’s salary on a regular basis, and after a certain period of time, the employee is granted shares in the company in consideration for the amount retained from their salary.

Stock Appreciation Right Plan or Phantom Equity Plan: A Stock Appreciation Right Plan or Phantom Equity Plan refers to notional shares allotted to employees. Both Stock Appreciation Right Plan and Phantom Equity Plan are very similar plans and are essentially cash bonus plans, although some plans pay out the benefits in the form of shares.

Restricted Stock Unit: Under a Restricted Stock Unit Plan or a RSU, the employee is entitled to receive stock at some specified date in the future, subject to certain conditions at a fair market value assigned to the Restricted Stock Unit at the time of vesting. The difference between ESOP and a Restricted Stock Unit is that while in case of an ESOP, the employee has an option to purchase shares of the company, in case of a RSU or a Restricted Stock Unit, the employee is allotted shares upon the occurrence of the vesting event.

Restricted Stock Award: Under a Restricted Stock Award plan or RSA, the employee receives the shares upfront when the Restricted Stock Award is granted.

What is an Employee Stock Option Plan (ESOPs)?

Employee Stock Option Plan or ESOPs are options granted to an employee to buy shares of the company (also referred to as exercise of ESOPs) at a predetermined price (also referred to as exercise price of ESOPs), subject to certain conditions, such as active employment with the company over a vesting period and meeting individual or team level performance based milestones.

The Exercise Price of ESOPs, i.e., price at which the employee can buy shares is fixed at the time of granting the ESOPs. Usually, this price is par value of the shares or market value of the shares at the time of grant. As a result, the employee gets the benefit of buying shares of the company at a discount to the market price of the shares of the company (assuming the company has done well).

An employee who has been granted ESOPs can exercise his right to acquire shares, upon the ESOPs vesting on him. This right of an employee to buy the shares is not in perpetuity and is usually subject to certain restrictions, including an Exercise Period and sometimes a lock-in-period.

Illustration: ABC Pvt. Ltd. (ABC) offers ESOPs to Mr. X, under the terms of which Mr. X is entitled to 200 equity shares of ABC, amounting to 2% of the paid-up share capital of ABC at the time of grant of the ESOPs, at par value of the shares. The ESOPs granted to Mr. X are exercisable as per the schedule set out below:

  • 25% of the ESOPs shall be exercisable upon completion of 2 years by Mr. X with ABC
  • 25% of the ESOPs shall be exercisable upon completion of 3 years by Mr. X with ABC
  • 25% of the ESOPs shall be exercisable upon completion of 4 years by Mr. X with ABC
  • 25% of the ESOPs shall be exercisable upon completion of 5 years by Mr. X with ABC

This means that once Mr. X has completed 2 years with ABC, he will be entitled to buy 50 equity shares of ABC at Rs. 10/share. Please understand that it is not mandatory for Mr. X to buy these shares once he is entitled to them. It is his option to buy the shares if he wants to. The policy will state the time period till when Mr. X can exercise this option. Such period is referred to as the ‘Exercise Period’. However, if not exercised, the option to buy the shares will lapse after the Exercise Period.

How is an ESPP different from ESOP?

ESOP is an option given to an employee to buy shares of the company at a later date. Since ESOP is an option, an employee does not have to mandatorily buy shares of the company. On the other hand, a ESPP is a purchase plan implemented by a company, where the company withholds certain part of the employee’s salary to ESPP every month for a predetermined term. Upon completion of the term, the ESPP holding employee is issued shares of the company. Unlike an ESOP, in case of ESPP the employee doesn’t have an option to buy shares. He has to mandatorily buy shares of the company.

Illustration: ABC Pvt. Ltd. (ABC) offers an ESPP to Mr. X, under the terms of which Mr. X can contribute 5% of his salary every month for a year, at the end of which he can buy shares of ABC at a 10% discount to the price of the shares on the date of grant of the ESPP, using the money contributed from his salary. Therefore, if the price on the date of issue of ESPP is Rs. 100, Mr. X can exercise the right to buy the shares a year later at Rs. 90/share, i.e., 10% discount to Rs. 100.

What is a Stock Appreciation Right (SAR) / Phantom Equity Plan (PEP)?

Under a Stock Appreciation Right Plan or Phantom Equity Plan, employees of companies/startup are given the right to the appreciating value of certain no. Of shares in such Company/Startup. In other words, they are granted notional shares and not actual shares in the company/startup. Both Stock Appreciation Right Plan and Phantom Equity Plan are very similar plans and are essentially cash bonus plans.

Stock Appreciation Right Plan/Phantom Equity Plan typically provide the employee with a cash payment based on the increase in the value of the employer’s shares over a specified period of time. In case of both Stock Appreciation Right Plan and Phantom Equity Plan, employees typically never become shareholders of the company.

How do Stock Appreciation Right Plan/Phantom Equity Plan work?

The following illustration should clarify your doubts: ABC Pvt. Ltd. (ABC) issues 1000 phantom shares to Mr. X to be vested upon completion of 2 years in the company, at the value of the shares on the exercise date. At the end of completion of 2 years, if the fair market value of the equity shares of ABC is Rs. 100, then Mr. X will be paid Rs. 100,000 after deducting TDS at applicable tax rate.

Stock Appreciation Right Plan/Phantom Equity Plan Vs. Other Stock Incentive Plans The most important difference between a Stock Appreciation Right or a Phantom Equity and all other forms of employee incentive plans is that while in all other cases, the employee of a company/startup, at some point owns shares in such company/startup and hence becomes a shareholder in such company/startup. In the case of Stock Appreciation or Phantom Equity, as the name suggests there are no shares, they are just "phantom" or non-existent shares.

Benefits of Stock Appreciation Right Plan/Phantom Equity Plan for the Company/Startup/Employer The Stock Appreciation Right Plan or Phantom Equity Plan allow the employee to partake in the benefits of increasing value of the company without having to go through the process of allotment of shares of bringing the employees on the cap table. Therefore, from a company/startup/employer perspective, it is a great structure as it has minimum paper work and the company/startup doesn’t have to go through the paperwork of allotting shares each time an employee exercises stock incentives, like in the case of ESOPs, ESPPs, RSUs and RSAs.

Benefits of Stock Appreciation Right Plan/Phantom Equity Plan for the Employee From the employee’s perspective, Stock Appreciation Right/Phantom Equity Plan allows the employee to enjoy the benefits of increasing value of the shares, without worrying about the various tax implications that arise in case of other stock incentive plans, especially ESOPs. Moreover, in case of all other stock incentive plans including ESOPs, the employee gets to enjoy the benefits of being a shareholder only when he is able to sell his shares. However, in case of Stock Appreciation Right Plan/Phantom Equity Plan, the employee doesn’t have to worry about liquidity for his shares.

What is a Restricted Stock Unit (RSU)?

Under a Restricted Stock Unit Plan or a RSU, the employee is entitled to receive shares of the company/startup at a specified date in the future, subject to certain conditions. The shares are typically issued at the fair market value of the company/startup, at the time of vesting of such right.

How do RSUs work?

The following illustration may help understand how RSUs typically work: ABC Pvt. Ltd. (ABC) offers 999 RSUs to Mr. X vested equally over 3 years. This means that Mr. X will get 333 equity shares of ABC upon completion of Year 1, 2 and 3, respectively. Unlike in the case of an ESOP, Mr. X will not be required to pay for the shares. Effectively, the shares will be issued to Mr. X for free.

RSU Vs. ESOP and Other Employee Incentive Plans

The difference between ESOP and a Restricted Stock Unit is that while in case of a ESOP, the employee has an option to purchase shares of the company/startup, in case of a RSU or a Restricted Stock Unit, the employee is allotted shares upon the occurrence of the vesting event, and doesn’t have to typically buy these shares. However, given the Indian Companies Act requirement, this structure becomes difficult to implement, as the Act doesn’t provide for allotment of shares for "free" and the terms for issuance of sweat equity are quite a few.

But unlike a RSA, the employee does not actually receive shares, unless the conditions are met and so does not have voting rights or rights to receive dividends on the date of grant. The employee receives the shares only once the conditions are met.

What is a Restricted Stock Award (RSA)?

Under a Restricted Stock Award plan or RSA, the employee receives shares of the company/startup upfront when the Restricted Stock Award is granted. The Restricted Stock Award plan is the most generous of all employee incentive plans that are typically in practice.

Restricted Stock Award Vs. Other Employee Incentive Plans

This is because, unlike all other incentive plans, including ESOPs, where the employee has the right to buy or enjoy the benefits of shares only after vesting has occurred, in the case of a Restricted Stock Award or RSA, the employee gets the shares upfront subject to certain conditions. If the conditions are not met, then the shares are forfeited. Unlike an ESOP, in case of Restricted Stock Award/RSA, the employee is considered to be the owner of the shares from the date of the Restricted Stock Award is granted and is entitled to receive dividends and has voting rights immediately. Additionally, once shares are allotted, if the employee does not meet the conditions, then enforcing a buyback of shares from the employee may be challenging. Which is why incentive structures such as ESOPs are more popular, as the employee has to earn the right to buy shares in the company as opposed to getting the shares upfront and putting the onus on the company to retrieve them in case of default, as is the case with Restricted Stock Awards.

Restricted Stock Award for Startups

For reasons stated in the preceding paragraph, a Restricted Stock Award/RSA is not very popular in early stage companies/startups in India or in fact even with private limited companies.

Which is the most popular mode of granting stock incentives to employees in India?

ESOPs are the most popular mode of employee stock incentives. This is because ESOPs as employee stock incentive structure have been used more widely and commonly. As a result there is clarity in the way ESOPs function both for employer and employee. Even from familiarity perspective, employees and employers are more familiar with ESOPs than other mode of employee incentives.

Employee Stock Option Plan or ESOPs are options granted to an employee to buy shares of the company (also referred to as exercise of ESOPs) at a predetermined price (also referred to as exercise price of ESOPs), subject to certain conditions, such as active employment with the company over a vesting period and meeting individual or team level performance based milestones.

Illustration: ABC Pvt. Ltd. (ABC) offers ESOPs to Mr. X, under the terms of which Mr. X is entitled to 200 equity shares of ABC, amounting to 2% of the paid-up share capital of ABC at the time of grant of the ESOPs, at par value of the shares. The ESOPs granted to Mr. X are exercisable as per the schedule set out below:

  • 25% of the ESOPs shall be exercisable upon completion of 2 years by Mr. X with ABC
  • 25% of the ESOPs shall be exercisable upon completion of 3 years by Mr. X with ABC
  • 25% of the ESOPs shall be exercisable upon completion of 4 years by Mr. X with ABC
  • 25% of the ESOPs shall be exercisable upon completion of 5 years by Mr. X with ABC

This means that once Mr. X has completed 2 years with ABC, he will be entitled to buy 50 equity shares of ABC at Rs. 10/share. Please understand that it is not mandatory for Mr. X to buy these shares once he is entitled to them. It is his option to buy the shares if he wants to. The policy will state the time period till when Mr. X can exercise this option. Such period is referred to as the ‘Exercise Period’. However, if not exercised, the option to buy the shares will lapse after the Exercise Period.

Who is eligible to receive ESOPs?

ESOPs are governed under the Companies Act, 2013. Under the Companies Act, 2013, ESOPs can only be granted to employees or some directors. Please see below for the detailed list of persons to whom ESOPs can be granted:

  • (a) a permanent employee of the company/startup, whether working in India or outside India
  • (b) director of the company/startup, as long as he not an independent director
  • (c) director of the company/startup, as long as he holds less than 10% of the paid up share capital of the company, whether directly or through his relative or through any body corporate, directly or indirectly
  • (d) an employee of a subsidiary, in India or outside India
  • (e) an employee of a holding company.
  • (f) Promoters of a company if such company has received a “Startup” recognition from DIPP, Government of India and such grant is proposed to be made within 5 years from the date of incorporation of the Startup.

Who cannot be granted ESOPs?

  • (a) Part time employee
  • (b) Advisor
  • (c) Mentor
  • (d) Consultant
  • (e) Promoter/Co-founder of a company not recognized as a Startup by the DIPP, Government of India, or in case of a recognized Startup, where such grant is proposed to be made after 5 years from the date of incorporation.

Private limited companies especially company in early stages of business or startups typically like to grant ESOPs to part time employees, advisors, mentors, consultants and co-founders. However, considering the provisions of the Companies Act, 2013, these persons cannot be granted ESOPs unless they are permanent employees of the company or are directors holding less than 10% of the share capital of the company/startup. For such persons, the company will have to structure different modes of stock incentive plans and not the statutorily regulated ESOPs. Warrants or partly paid up shares are popular instruments for incentivizing advisors and mentors.