Changing Contours of Employees for Extending Welfare Benefits

Over years, the buzzword “employee stock options” has attracted attention not only of corporate sector but also of Regulatory Authorities. Prior to the promulgation of Companies Act, 2013, employee stock option schemes are only been regulated by the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 which are applicable only on listed companies. 

Ms. Mohini Varshney
Assistant Vice President
+919971673332
mohini@indiacp.com
The said guidelines allows listed companies to give employee stock options to permanent employee of the company working in India or out of India; a director of the company, whether a whole time director or not; permanent employee and director of subsidiary company, in India or out of India, or of a holding company of the company. But since these guidelines are applicable only on listed companies, unlisted companies were assumed to be allowed to give ESOPs to any person who is on the payroll of the company or any group company as an employee.


When the provisions governing employee stock options under the Companies Act, 2013 will come into force , the entire scenario will change as in the new Act specific provisions have been chalked down for employee stock options wherein it is proposed to exclude independent directors from the ambit of grant of employee stock options.

Further, the draft rules, as floated by the Ministry of Corporate Affairs for public comments, defines the term “employee” for the purpose of Employee Stock Option Schemes, which covers permanent employee of the company working in India or outside India; a director of the company, whether a whole time director or not; permanent employee and director of subsidiary company, in India or out of India, or of a holding company or of associate company of the company.

It is interesting to note that the new definition as prescribed under draft rules allows companies to give stock options even to employees and directors of associate companies of the company. This implies that when the Companies Act, 2013 will come into enforcement in its entirety, companies will be able to give stock options even to the employees of its joint venture companies and to companies in which the company controls at least twenty per cent of total share capital or controls its business decisions under an agreement. Now, what remains a mystery is to see how SEBI alters the contours of its ESOP guidelines in alignment with the Companies Act, 2013.
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