New Outlook for Employee Welfare Trusts Shareholding in the proposed ESOP & ESPS Regulations

On November 20, 2013, the capital market regulator, SEBI came out with Discussion Paper on 'Review of guidelines governing stock related employee benefit schemes' with the intent to frame comprehensive ESOP & ESPS Regulations. Primarily, the discussion paper aims to allow secondary market acquisitions by Employee Welfare Trusts in order to align the working of the said Trusts with the internationally accepted practice thereby facilitating the companies to grant options to employees without diluting their existing share capital, something that had been prohibited earlier by the capital market regulator, SEBI vide its Circular dated 17th January, 2013.

Ms. Mohini Varshney
Assistant Vice President
Till date, there is no specific framework that governs the classification of the Employee Welfare Trusts in the Promoter/ Non-Promoter Category. Therefore, there is no standard practice being followed by the Companies in respect of classification of the Employee Welfare Trust to the Promoter or Non-Promoter Category. However, SEBI in its discussion paper, have duly addressed this concern and proposed to include the said Employee Welfare Trust under the ambit of Promoter Category.

Now the pertinent questions are: 

  • How the Employee Welfare Trust will acquire shares from the secondary market in the event of promoter holding in the company is already 75%? 
  • Whether the Promoter will be ready to dilute its stake for sharing the podium of ownership with the Employees?

Such practical concerns are yet to be addressed.

For ESOP related consultation, feel free to contact
Ms. Mohini Varshneya
Assistant Vice President
Corporate Professionals
+911140622231, +919971673332,
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