What is ESOP ?

Section 2 clause 37 of Companies Act, 2013 defines “employees stock option” which means, the option given to the directors, officers or employees of the company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a predetermined price.‟ This provision needs to be read with Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 and with SEBI rules related to ESOP in case of Listed companies.

Employee: Permanent employee and Director of a Company or Company group but does not include Independent Director, employee who is promoter, a director hold alone or through friend/relative or through body corporate directly or indirectly 10% shares of company, a consultant or advisor.

What is an Importance of Employee Stock Option Plan (ESOP):

· Tax deductible benefits.

· Increase flexibility of the proprietor.

· Allows continuity in the management.

· Boost employee‟s morale.

· Ensure long-term business.

· It gives an opportunity to corporations to pay without a reduction in book profits.

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