Maharashtra State BoardHSC Commerce 12th Board Exam
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Answer in brief. Explain Employee stock option scheme. - Secretarial Practice

Answer in Brief

Answer in brief.

Explain Employee stock option scheme.

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Employee Stock Option Scheme (ESOS):

  1. This is a scheme through which a company encourages employee participation in the business of a company.
  2. Under this scheme, the company offers certain shares, from the new issue to the whole time directors, officers, or employees of the company.
  3. The company offers the shares at a predetermined price which is usually less than the price offered to the general public.
  4. The Employee Stock Option Scheme (ESOS) must be approved by passing a special resolution in the general meeting.

Provisions related to ESOS are as follows:

  1. A company may offer the shares directly to the employees or through an Employee Welfare Trust.
  2. The shares are offered at price less than the market price.
  3. There is a minimum vesting period* of one year.
  4. Usually, the company will specify the lock-in period i.e. period during which the employee cannot sell his shares. The Lock-in period is a minimum of 1 year between the grant of option and vesting.
  5. Shares issued under this scheme do not enjoy any dividend or voting rights till the employees buy the shares.
  6. The company has to get the approval of shareholders through a special resolution to issue ESOS.
  7. The employee cannot transfer his option to any other person nor can he pledge or mortgage* the shares issued under ESOS.
  8. The company has to set up a compensation committee to administer ESOS. The company has to fulfill the provisions of SEBI (Share Based Employee Benefits) Regulations, 2014.
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Balbharati Secretarial Practice 12th Standard HSC Maharashtra State Board
Chapter 3 Issue of Shares
Exercise Q.5 | Q 8 | Page 67
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