ESOP Plan & Implementation

How It Works

1. 1

   Assess eligibility and pool size

   Review the company's cap table, funding agreements, and investor term sheets to determine the appropriate ESOP pool size (typically 10-15% on a fully diluted basis) and confirm which employees are eligible under the Companies Act 2013.

2. 2

   Draft the ESOP scheme document

   Prepare a comprehensive scheme document specifying the total pool, grant eligibility criteria, vesting schedule (commonly a 1-year cliff and 4-year total vest), exercise price methodology, and exit provisions, including treatment of unvested options on termination.

3. 3

   Obtain board and shareholder approval

   Convene a board meeting to approve the scheme in principle and schedule an Extraordinary General Meeting (EGM) or pass a resolution by postal ballot to obtain the mandatory special resolution from shareholders under Section 62(1)(b) of the Companies Act 2013.

4. 4

   File with the Registrar of Companies

   File the requisite forms with the MCA portal, maintain Form SH-6 as the statutory register of employee stock options, and update the register after each grant, vesting, exercise, and lapse event throughout the plan's lifecycle.

5. 5

   Issue grant letters to employees

   Execute individual grant letters or ESOP agreements with each recipient specifying the number of options granted, grant date, vesting schedule, exercise price, and the window period during which options may be exercised after vesting.

6. 6

   Establish ongoing administration procedures

   Set up an ESOP administration framework covering annual valuation updates, TDS computation at exercise, payroll integration for perquisite reporting, and a clear buy-back or secondary sale policy for employees wishing to liquidate vested shares.