ESOP Design Services
Attain ownership and boost wealth for your employees with a well-structured ESOP: ESOP, or Employee Stock Ownership Plan, is a way for a company to effectively involve its employees in its success by providing them with a tangible stake in the organization. An ESOP consultant can expertly help set up and manage this type of plan, imparting a sense of ownership to employees and thereby contributing significantly to talent retention. Additionally, the ESOP can also offer advantageous tax benefits and serve as a valuable source of liquidity for the company.
Why Choose ESOP Design Services:
- Strengthen your organization’s culture: Encourage ownership and a founder’s mindset that contributes to building a high-performance organization.
- Attract top talent in the ecosystem: Offer a robust rewards proposition that includes wealth creation opportunities, attracting new, valuable talent to your organization.
- Retain your star performers: Create a sense of ownership by rewarding performers with performance-linked grants, boosting talent retention.
How We Can Help You Design Your ESOP:
At every step of the process, from choosing the right design options to communicating the ESOP plan to employees, our ESOP consultants will work with you to bring your ESOP to life.
- Step 1 – Conceptualization: Craft an ESOP plan that meets your company’s objectives and is tax-efficient, taking into account industry trends.
- Step 2 – Design & Documentation: Develop an ESOP policy document after consultations with your management team.
- Step 3 – Socialization: Integrate the ESOP into your overall rewards program and communicate the wealth-creation opportunities to employees.
- Step 4 – Governance: Implement a strong governance process to track the ESOP pool and grants at an employee level.
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Employee Stock Ownership Plan (ESOP) is a scheme that provides employees with the option to purchase shares in the company at a pre-determined price at a future date. An ESOP is granted to employees through a grant letter that details the grant date, vesting details, exercise price, etc.
ESOPs must be compliant with the Companies Act, 2013, the Income-tax Act, 1961, SEBI (Share-based Employee Benefits and Sweat Equity) Regulations, 2021, FEMA, 1999 (if applicable), and applicable accounting standards.
If your startup is registered in India, the following steps are necessary:
- Have an ESOP scheme created by a professional, covering legal clauses governing ESOP administration, pool size, grants, vesting, employee cessation, exercise period, etc.
- Obtain board approval for the ESOP scheme
- Get the ESOP scheme approved through a special resolution at a shareholders’ meeting (EGM).
- File the board resolution and EGM resolutions with the Registrar of Companies (ROC) website using form MGT14.
- Grant ESOPs to employees through a grant letter.
- Grant Date: It is the date on which the option to purchase shares is granted by the company to the employee.
- Vesting Period: It is the minimum amount of time that the employee must work for the company in order to be eligible to purchase the shares. For example, if the employee is entitled to 100 options and the vesting period is 5 years, the following two scenarios are possible:
- Equal vesting, i.e. 20 options for completing every year of service or,
- Milestone based, e.g. 12.5% at the end of 1st & 2nd year, 25% each at the end of the 3rd, 4th and 5th year
- Exercise Period: It is the time frame in which the employee can exercise their option to purchase the shares.
- Exercise Date: It is the date on which the employee chooses to purchase the shares.
- Exercise Price: It is the predetermined price at which the employee will buy the shares.
- ESOP Plan: A plan that lists the features and terms of the ESOP scheme.
- Trust Deed (if the ESOP is administered by a trust): A trust deed to hold the shares if the trust route is used for the ESOP Plan.
- Letter of Grant of Options: Options are granted by a letter from the company’s board of directors to employees. A nomination form can be attached to ensure options are transferred to a nominee in case of death or permanent disability of the employee.
(All documents will be prepared by LFS)