If you are planning to start granting ESOPs to your employees, it is important to follow all the steps that are required under the Indian laws, before the ESOPs you are granting to employees can be considered to be validly granted. Just setting out the details in an employee offer letter is not enough! We have summarized the steps below for ease of reference:
1. Draft an ESOP Scheme;
2. Get the ESOP Scheme approved by the Board of Directors and the Shareholders of the Company;
3. File Form MGT-14 with ROC in case special resolution is passed for approval of the Scheme (Not required for private limited companies);
4. Identify eligible employees to whom ESOP can be granted;
5. Issue grant letters to eligible employees summarizing the options granted and other necessary details;
6. Take the Board of Directors and Shareholders’ approval in case grant is to be made to:
a. an employee of a subsidiary or holding company; or
b. an employee equal to or above 1% of the issued share capital of the Company;
7. Maintain a record of ESOP in Form SH-6 (Register of ESOP); and
8. Make the necessary disclosure of ESOP in the director’s report, on a yearly basis.