CREATING AN ESOP POLICY In our experience of having assisted several entrepreneurs with execution of ESOPs for their startups, we have observed that most entrepreneurs are under the impression that by just mentioning the number of ESOPs on their cap table, or in offer letters to their employees, the startup has fulfilled its obligation to … Continue reading LexGyaan Series on ESOPs – Part 1: How do Employee Stock Options Plan (ESOPs) work?
Granting ESOPs to Promoters/Co-Founders I often get asked this question - “Can I grant ESOPs to a Co-Founder who I recently brought on board my Startup?”. Well the answer is both yes and no! The Companies Act, 2013 prohibits grant of ESOPs to the Promoter of a company. The term “Promoter” does not necessarily refer … Continue reading LexStart’s LexGyaan Series: Can I grant ESOPs to a Co-Founder?
1. If it’s not to an employee or a director, then don’t call them ESOPs! Think of alternative structures. ESOPs under Indian Companies Act, 2013 can be issued only to employees and directors. In case of a startup recognized by Department of Promotion for Industry and Internal Trade, you can even issue ESOPs to a … Continue reading LexStart’s LexGyaan Series : Thinking of issuing ESOPs? 2 Things you need to know!
Are ESOPs free? Yes and No. The full form of ESOP is Employee Stock Options. Stock options are free and the options themselves are granted to the employees free of cost. They are considered as a part of an employee’s remuneration. It is a benefit given to the employee. There is no grant price to … Continue reading Are ESOPs free?
I was talking to a startup founder about ESOPs and he very proudly informed me that he has given ESOPs to his employees. I must say I was impressed! The reason being, this friend of mine had incorporated his start-up only 6 months back and although he had been hiring aggressively, I didn’t think he had the … Continue reading Is Your ESOP Grant Really an ESOP Grant or Just an Offer?
I often get asked this question – “Can I grant ESOPs to a Co-Founder who I recently brought on board my Startup?”. Well the answer is both yes and no! The Companies Act, 2013 prohibits grant of ESOPs to the Promoter of a company. The term “Promoter” does not necessarily refer to only a person … Continue reading Granting ESOPs to Promoters/Co-Founders
A cliff or a moratorium is the time period between grant of ESOPs to an employee and vesting of the ESOPs. Under the Indian Companies Act, 2013, there has to be a mandatory one year gap between granting and vesting of ESOPs by companies in India. Why does it matter? It matters because in most … Continue reading Did you know that there is a mandatory 1 year cliff on ESOPs?
In a roller coaster ride of a start up, employee retention through thick and thin is extremely critical – especially in today’s market where the focus is on growing fast. As an entrepreneur or founding team if you want to add key members, who could be part of the team for the long haul, you … Continue reading The role of ESOP in Start ups
The following information must be mandatorily disclosed in the Director's Report filed by the Board of Directors: 1 Dividend, if declared & amount, if any, carried forwarded to reserves 2 Details of ESOPs: a. Options granted b. Options vested c. Options exercised, and d. Total number of Options in force, if any 3 Information about the financial … Continue reading Information to Include in Director’s Report
The exercise price for a stock option will depend on the objective for which the ESOPs are being granted. ESOPs for employees can be granted based on different considerations by different companies. In fact, even with respect to different employees within the same company, the exercise price may be different, as the ESOPs may be … Continue reading What should be the exercise price/strike price of an Employee Stock Option?