⇒ ESOP (Employee Stock Option Plan) is a scheme that allows a company to offer shares to employees as part of their compensation package. It helps attract, retain, and reward employees by giving them ownership in the company. However, issuing ESOPs requires companies to follow strict legal and regulatory compliance under the Companies Act, 2013 and Income Tax Act.
Key ESOP Compliance Requirements:
1) Board and Shareholder Approvals
⇒ The company must pass a board resolution and obtain shareholder approval through a special resolution in a general meeting.
2) Drafting ESOP Policy
⇒ Create a clear ESOP policy outlining eligibility, vesting schedule, exercise price, lock-in period, and other terms.
3) Maintain ESOP Register
⇒ As per Rule 12 of Companies (Share Capital and Debentures) Rules, 2014, a company must maintain a register in Form SH-6.
4) ROC Filing (Form MGT-14)
⇒ File resolutions with ROC after approval of ESOP Scheme.
5) Accounting and Tax Reporting
⇒ Account for the fair value of options and report them in financial statements as per applicable accounting standards (Ind AS 102).
6) Form PAS-3
⇒ File return of allotment with ROC when shares are issued upon ESOP exercise.