Answer in Brief
Answer in brief.
Explain Employee stock option scheme.
Employee Stock Option Scheme (ESOS):
- This is a scheme through which a company encourages employee participation in the business of a company.
- Under this scheme, the company offers certain shares, from the new issue to the whole time directors, officers, or employees of the company.
- The company offers the shares at a predetermined price which is usually less than the price offered to the general public.
- 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:
- A company may offer the shares directly to the employees or through an Employee Welfare Trust.
- The shares are offered at price less than the market price.
- There is a minimum vesting period* of one year.
- 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.
- Shares issued under this scheme do not enjoy any dividend or voting rights till the employees buy the shares.
- The company has to get the approval of shareholders through a special resolution to issue ESOS.
- The employee cannot transfer his option to any other person nor can he pledge or mortgage* the shares issued under ESOS.
- 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.
Concept: Methods of Issue of Shares
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