Procedure for Issue of Employee Stock Ownership Plan (ESOP)

ESOP: Employee Stock Ownership Plan (ESOP)

PROCEDURE FOR ISSUE OF ESOP– An employee stock ownership plan (ESOP) refers to an employee benefit plan which is intended to encourage employees to acquire stocks or ownership in the company. It offers employees an ownership interest in the organization. Under ESOP, an employee gets the benefit of acquiring the shares of the company at the nominal rate, and sell them (after a defined tenure set by his employer) and make a profit.

Governing Provisions under the Companies Act, 2013:

  • Section 62 (1) (b) of the Companies Act, 2013
  • Section 2(37) of the Companies Act, 2013
  • Rule 12 of the (Share Capital and Debentures) Rules, 2014


  1. Preparation of draft ESOP Scheme in accordance with the applicable provisions of the Companies Act, 2013 and Rules made thereunder.
  2. Prepare the notice and agenda notes etc. for the board meeting along with the draft resolution and scheme to be passed in the board meeting and convene the Board Meeting.
  3. Pass the resolution for the issuance of shares through ESOP, determine the price of shares to be issued pursuant to ESOP and fix time and date and approve for calling the general meeting (AGM / EGM, as the case may be) to pass a resolution for issuing ESOP.
  4. File the MGT-14 form with the Registrar of Companies within 30 days of passing the resolution (Board Resolution).
  5. Send notice of the general meeting to all the directors, auditors, shareholders and secretarial auditors of the company at least before twenty-one days of the date of the meeting.
  6. Pass the special resolution for the issuance of shares under the ESOP to the employees, directors and officers of the company in the general meeting.
  7. File MGT-14 form with the Registrar of Companies within thirty days of passing the special resolution in the general meeting along with the documents.
  8. Send options to the employees, directors and officers of the company for purchasing shares under ESOP.
  9. Maintain a ‘Register of Employee Stock Options’ in Form No.SH-6 and enter the particulars of the ESOP granted to the employees, directors or officers of the company.
  10. Convene board meeting and pass resolutions for allotment of shares under Employee Stock Option Plan.
  11. File the e-Form PAS-3 with the Registrar of Companies within 30 days of allotment along with attachment.

Note: If a private company wants to issue ESOP, then it should ensure that the Articles of Association (AoA) authorises for issuance of shares through ESOP. If the AoA does not authorise, then the company should first hold an extraordinary general meeting to alter the AoA to include the provisions of issuance of shares through ESOP and then proceed with holding the board meeting for the passing of the resolution and getting the shareholder’s approval for ESOP Scheme.

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