Issue of ESOs is required to be authorised by a Special Resolution containing the prescribed particulars passed by the company at the general meeting. Grant of option to employees of subsidiary or holding company; or. Pricing of ESOs exercise price is to be determined in conformity with the applicable accounting policies.
Procedure for Issue of Employee Stock Option Plan
Conditions subsequent: The following conditions are required to be fulfilled subsequent to issue of ESOs:. Certain basic conditions: Minimum period of 1 year between grant of options and vesting of options. Company has the freedom to specify the lock-in-period for shares issued pursuant to exercise of option.
No right to dividend or to vote till shares are issued on exercise of option. The amount, if any, payable by the employees, at the time of grant of option may be —. Cannot be pledged, hypothecated, mortgaged or otherwise encumbered or alienated in any other manner. No person other than the employees to whom the option is granted shall be entitled to exercise the option, except -. In case the employee suffers a permanent incapacity while in employment, all the options granted to him as on the date of permanent incapacitation, shall vest in him on that day.
In the event of resignation or termination of employment, all options not vested in the employee as on that day shall expire. However, the employee can exercise the options granted to him which are vested within the period specified in this behalf, subject to the terms and conditions under the scheme granting such options as approved by the board of directors. Variation A special resolution is required for variation in terms of ESOS not yet exercised by employees provided such variation is not prejudicial to the interests of the option holders and the notice for such special resolution to disclose, inter alia, the full details with rationale for variation.
Notice for the resolution has to be accompanied by an explanatory statement containing the prescribed particulars.
The Register of ESOPs shall be maintained at the registered office of the company or such other place as the Board may decide. The entries in the register shall be authenticated by the Company Secretary of the company or by any other person authorised by the board of directors for the purpose. Involving dealing in or subscribing to or purchasing securities of the company, directly or indirectly; and. Satisfying, directly or indirectly, any one of the following conditions:.
The scheme is set up by the company or any other company in its group;. The scheme is funded or guaranteed by the company or any other company in its group;. The scheme is controlled or managed by the company or any other company in its group. Scheme s involving secondary acquisition or gift or both have to be mandatorily implemented through trust s.
Drop us a message
Implementation schemes through setting up irrevocable trust s has to decided upfront while taking approval of share holders for setting up the schemes. Limits to automatically include the expanded capital of the company where such expansion has taken place on account of corporate action including issue of bonus shares, split or rights issue. Above limits applicable for all trusts and schemes taken together at the company level and not at the level of individual trust or scheme.
Above limit not applicable for fresh issue of shares to the trust or gift from promoter or promoter group or other share holders. If the options, shares or SAR granted under any of the schemes exceeds the number of shares that could be acquired by the trust through secondary acquisition, then such shortfall of shares has to be made up by the company through new issue of shares to the trust in accordance with the applicable provisions.
If such trust s existing as on 28th October, are not able to appropriate the unappropriated inventory within 1 year,. It has to be disclosed to the stock exchange s at the end of such period and then the same is required to be sold on the recognised stock exchange s where shares of the company are listed, within 5 years from the date of notification of SBEB Regulations.
In case of emergency for implementing the GEBS, RBS, after recording the reasons for sale, subject to utilisation of money realised within definite period as per the scheme or trust deed.
- trade options full time?
- commodity trading advisor strategies;
- Issue of Shares to Employees through Employees Stock Option Scheme.
Participation in buy-back or open offers or delisting offers or any other exit offered by the company generally to its share holders, if required;. For repaying the loan, if the unappropriated inventory of shares held by the trust is not appropriated within the specified timeline;. Any other committee fulfilling the applicable requirements e.
Nomination and Remuneration Committee can be designated as compensation committee. If the scheme is being implemented through a trust, the compensation committee has to delegate administration of such schemes to trust s. Secondary acquisition for implementation of the schemes — mentioning the percentage of secondary acquisition subject to limits specified under SBEB Regulations that could be undertaken;.
Grant of option, SAR, shares or other benefits, as the case may be, to employees of subsidiary or holding or associate company;. In case of winding up of the schemes being implemented by a company through trust, the excess monies or shares remaining with the trust after meeting all the obligations, if any, has to be utilised for repayment of loan or by way of distribution to employees as recommended by the compensation committee.
In case new issue of shares is made under any scheme, shares so issued have to be listed immediately in any recognised stock exchange where the existing shares are listed, subject to the specified conditions. The board of directors of every company that has passed a resolution for the schemes under SBEB Regulations is required to place before the share holders a certificate from the auditors of the company at each annual general meeting stating that the scheme s has been implemented in accordance with SBEB Regulations and in accordance with the resolution of the company in the general meeting.
Any company implementing any of the share based schemes has to follow the requirements of the 'Guidance Note on Accounting for employee share-based Payments' Guidance Note or Accounting Standards as may be prescribed by the Institute of Chartered Accountants of India ICAI from time to time, including the disclosure requirements prescribed therein.
If shares issued as part of public issue at the same price as public issue such shares not subject to lock-in. Note: The stringent norms prescribed by SEBI Prohibition of Insider Trading Regulations, substantially restrict the opportunities for the employees and senior management in possession of unpublished price-sensitive information to reap the benefits of ESOPs. Section 17 2 vi provides that the value of any specified security including ESOP or sweat equity shares allotted or transferred, directly or indirectly, by the employer or former employer, free of cost or at concessional rate will be taxed as perquisites in the hands of the employee receiving such benefit.
Explanation c to section 17 2 vi provides that the perquisite value of specified security including ESOP or sweat equity shares shall be the fair market value on the date on which the option is exercised by the employee as reduced by the amount actually paid by, or recovered from such employee.
Login to Partner Account
Explanation d to section 17 2 vi provides that fair market value means the value to be determined in accordance the method as may be prescribed. In a case where, on the date of the exercising of the option, the shares of the company are listed on a recognised stock exchange, the fair market value shall be the average of the opening price and closing price of the shares on that date on the said stock exchange.
Where, on the date of exercising of the option, the shares are listed on more than one recognised stock exchanges, the fair market value shall be the average of opening price and closing price of the shares on the recognised stock exchange which records the highest volume of trading in the shares. Where, on the date of exercising of the option, there is no trading in the shares on any recognised stock exchange, the fair market value shall be —. Where, on the date of exercising of the option, the shares in the company are not listed on a recognised stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.
From A. ESOPs are not taxed at the time of grant or exercise. As per proviso to S. Transfer under a gift or irrevocable trust of shares, warrants or debentures allotted under a scheme of stock options would attract capital gains. The market value of such shares, etc. The value on which the employer pays FBT is treated as cost of acquisition in the hands of the employee [S. The employer can recover FBT from the employee if the scheme is suitably modified and the recovery of fringe benefit tax is deemed to be the tax paid by such employee in relation to value of fringe benefits provided to him.
However, the employee will not be entitled for any refund out of such deemed payment of tax and is also not be entitled to claim any credit of such deemed payment of tax against tax liability on other income or against any other tax liability [S. Further, Rule 40C and Rule 40D have been prescribed for valuation of specified security being equity shares and specified security not being equity shares respectively.
Resolution for issue of shares through Employee Stock Option Plan (ESOP)
Valuation of shares of an unlisted company or specified security not being an equity share. Similarly, the fair market value of a specified security not being an equity share in a company will be such value of the share in the company as determined by a merchant banker on the specified date. Spray Engineering Devices Ltd. Chittaranjan A. URO - Dr. Reddy's Laboratories Ltd. Ind AS applicable in a phased manner. Recognising the need for establishing uniform sound accounting principles and practices for all types of share-based payments, the Accounting Standards Board of the Institute is developing an Accounting Standard covering various types of share-based payments including employee share-based payments.
However, as the formulation of the Standard is likely to take some time, the Institute has decided to bring out this Guidance Note. Once the Accounting Standard dealing with share-based payments comes into force, this Guidance Note will automatically stand withdrawn.
The GN establishes financial accounting and reporting principles for employee share-based payment plans, viz. For the purposes of the GN, the term 'employee' includes a director of the enterprise, whether whole time or not. For accounting purposes, employee share-based payment plans are classified into the following categories:. Equity-settled: Under these plans, the employees receive shares.
Cash-settled: Under these plans, the employees receive cash based on the price or value of the enterprise's shares. Employee share-based payment plans with cash alternatives: Under these plans, either the enterprise or the employee has a choice of whether the enterprise settles the payment in cash or by issue of shares. An employee share-based payment plan falling in the above categories can be accounted for by adopting the fair value method or the intrinsic value method. The accounting treatment recommended herein below is based on the fair value method. The application of the intrinsic value method is explained in paragraph An enterprise should recognise as an expense except where service received qualifies to be included as a part of the cost of an asset the services received in an equity-settled employee share-based payment plan when it receives the services, with a corresponding credit to an appropriate equity account, say, 'Stock Options Outstanding Account'.
If the shares or stock options granted vest immediately, the employee is not required to complete a specified period of service before becoming unconditionally entitled to those instruments. In the absence of evidence to the contrary, the enterprise should presume that services rendered by the employee as consideration for the instruments have been received. A company may implement ESOP programme, either directly or by setting up an irrevocable trust [3].
In a nutshell, there are three stages in the life cycle of an ESOP i. In the first stage, the company grants the options to its employees. In the second stage, there is an unconditional vesting period during which an employee cannot exercise the option. This vesting period cannot be less than one year from the date of grant of the option [4]. In the last stage, the employee gets the right to exercise the option by making an application for the issue of shares against the vested options.
Once the option is exercised within the time limit, the vested option is converted into shares by payment of the exercise price. The exercise price is normally determined in advance at the stage of grant. Market price of the shares on the exercise date, less the exercise price paid by the employee is treated as perquisite and withholding tax is levied at applicable rates.
The perquisite will arise only when the ESOPs are exercised by the concerned employee, whereby the company allots the securities to the employee and the perquisite is effectively given and passed on to such person as required by Section 17 2 vi of the Income Tax Act. The perquisite value will be the fair market value of the specified security on the date of the exercise of the option, as reduced by the amount actually paid by such person in respect of such security. At the stage of vesting, the employee gets only the right to exercise the option granted to him to get the allotment of securities of the company.
He need not exercise this option. If he does not, then no securities are allotted to him and there is nothing given or passed to him as required by Section 2 78 of the Act. It is evident from the analysis of this provision that neither the date of grant nor the vesting date are relevant in the context of the definition of remuneration under Section 2 78 of the Act as nothing is given or passed to the person receiving the ESOP till the date of exercise.
It is, therefore, the exercise date which is the relevant date for calculation of limit of managerial remuneration under Section of the Act and Regulation 17 of the Listing Regulations.