A new era of governance for granting ESOP by unlisted entities

It is a common saying that 'change is always better’, howsoever rigid it seems to be. Till now, there are no specific provisions regulating the regime of Employee Welfare Schemes framed by the unlisted Companies. However, the scenario will change when the Companies Act, 2013 will come into force in its entirety. Specific inclusion of provisions governing the ESOPs in the Companies Act, 2013 will broaden the horizons for rewarding employees thereby removing all the apprehensions faced by the unlisted companies.

Ms. Mohini Varshney
Assistant Vice President
The draft rules, floated by the Ministry of Corporate Affairs for public comments, prescribe certain pre-requisites that will be required to be taken into consideration while preparing Employee Welfare Schemes by unlisted entities. The main highlights of the draft rules related to Employee Stock Options are outlined as follow:

  • Enhanced disclosures in the explanatory statement annexed to the notice for seeking shareholders’ approval;
  • Approval of shareholders by way of separate resolution in case of grant of options to employees of subsidiary or holding company; and grant of option to identified employees, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option. 
  • Minimum period of one year between grant of options and vesting of options.
  • Disclosure about ESOS in Directors’ Report.

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