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ESOP is a great way to provide more benefits to your employees. We can help you get started with it and if required help you manage the account.

ESOP (Employee Stock Option Plan)

Employee Stock Option Plan or ESOP is a contract between a company and some of its employees. According to this contract, if those Employees stay in the same company for the next few years, then they will be given some shares of the company. And this stock is given at a better discount than the price of that share going on in the market.

This brings two benefits: Due to the benefits the employee receives, he works better and longer in the company. His continuous good work increases the profit of the company and due to which the value of the company's share increases.

After which he can earn profits by selling the company's stock in the market. The company does not need to give extra incentives in the form of cash to its employees. In this way, ESOP benefits both the company itself and its employees.

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Let's take an example for a better understanding of ESOP.

ESOP (Employee Stock Option Plan) is a good scheme made in the interest of employees. Under the ESOP plan, the employee can be entitled to the shares of the company. ESOPs give special benefits to employees as compared to other schemes. According to the information, under the ESOP, the government will give shares out of its remaining 24 stakes. 'O' in ESOP abroad means ownership. Companies in India do this to motivate employees to perform better without increasing costs.

Advantages of ESOP?

The tax benefits of an ESOP exit strategy can be significant. These benefits accrue to the selling shareholders (corporations) and employees participating in ESOP. The tax benefit to the selling shareholders and the corporation depends on whether the corporation is taxed as an S-corporation or as a C-corporation.

The non-tax benefits of an ESOP exit strategy are numerous and should also be considered by the business owner based on the owner's goals. Some of these advantages are:

  • A ready market for owner's stock
  • Buyer ready for owner's business
  • When stocks are valued on a "strategic market value basis" based on a fair market value, the market's minimum discount (typically 5 to 10 percent), because ESOP is the market for those shares.
  • A business owner who can gradually change ownership over a period of time and thus remains actively involved in the business
  • A vehicle for the owner to obtain the desired liquidity without selling it to a competitor or other third party
  • A retirement benefit for employees
  • To avoid restructuring, reorganizing management or reducing staff as integration plans and their associated costs, because management and employees continue after the transaction is closed
  • Avoid giving confidential information to any competitor or other potential buyers
  • A long-term financial investor (ESOP) who will not try to sell the corporation in a relatively short time period
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Packages for ESOP

Basic Package

Save upto 5% cost on this package

8,260

(inclusive of all taxes)

  • Package Includes
  • Change MOA
Get Started

Growth Package

Save upto 10% cost on this package

8,260

(inclusive of all taxes)

  • Package Includes
  • Change AOA
Get Started

Premium Package

Save upto 15% cost on this package

17,700

(inclusive of all taxes)

  • Package Includes
  • Change MOA
  • Change AOA
  • Change Name
Get Started

Documents Required

The documents to be attached along for the ESOP are mentioned below.

  • Copy of Stock Option Scheme/Amended Stock Option Scheme, certified by the company secretary
  • Copy of Notice of AGM/EGM for approving the Scheme/for amending the Scheme/for approving grants under Clause 6.3(a) or (b) of the SEBI (ESOS & ESPS) Guidelines, certified by the company secretary
  • Copy of resolution of shareholders for approving the Scheme/ for amending the Scheme/for approving grants under Clause 6
  • 3(a) or (b) of the SEBI (ESOS & ESPS) Guidelines, certified by the company secretary
  • List of Promoters as defined under the SEBI (ESOS & ESPS) Guidelines
  • Copy of latest Annual Report
  • Certificate of Auditor on compliance with SEBI (ESOS and ESPS) Guidelines. 7. Specimen copy of Share certificate
  • Any other relevant documents

Frequently Asked Questions (FAQs)

When should you sell the shares?

The decision to sell the shares acquired under ESOP is like any other investment decision. You need to take into account the capital gains implication as well as the need for liquidity for arriving at the decision. Moreover, if you sell the shares it will also depend on the future prospects of the company. It may also happen that the shares which you have acquired under ESOP are not listed. So, in such a situation you can not sell the shares until the shares are listed or the promoters offer you an exit, which may not be at very attractive terms. In such a situation, it will make sense for you to wait for a little till the shares are listed on a stock exchange.

Should you accept ESOPs in lieu of cash as part of your salary?

An old saying goes, “One bird in the hand is better than two in the bush.” Common sense would demand that one should opt for cash in lieu of ESOPs, but here such a comparison may not be so easy to make because generally, the projected price of shares under the ESOP plan may be significantly higher than the cash component being offered. Moreover, the option to choose cash in lieu of the ESOP may not always be available.

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