Tag Archives: ESOP

share based employee benefits & sweat equity

SEBI press release dated 6th August, 2021 wherein they are merging two regulations viz. Issue of Sweat Equity and Share Based Employee Benefits into one viz. Share Based Employee Benefits and Sweat Equity Regulations 2021.

Further, read on………..

The Board approved the merger of SEBI (Issue of Sweat Equity) Regulations, 2002 (“Sweat Equity Regulations”) and SEBI (Share Based Employee Benefits) Regulations, 2014 (“SBEB Regulations”) into a single regulation called the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. While approving the said merger, the Board also agreed to certain amendments to existing provisions. Some of the key proposals approved by the Board are as follows:

  1. The companies will be allowed to provide share based employee benefits to employees, who are exclusively working for such company or any of its group companies including its subsidiary or its associate.
  2. The companies will have flexibility in switching the administration of their schemes from the trust route to the direct route and vice versa with the approval of the shareholders, subject to the condition that the switch is not
    prejudicial to the interest of the employees.
  3. The time period for appropriating the unappropriated inventory of the trust has been extended from existing 1 year to 2 years subject to the approval of the Compensation/Nomination and Remuneration Committee for such extension.
  4. It has been decided to dispense with the minimum vesting period and lockin period for all share benefit schemes in the event of death or permanent incapacity (as defined by the company) of an employee.
  5. Maximum yearly limit of sweat equity shares that can be issued by a company listed on the main board has been prescribed at 15% of the existing paid up equity share capital within the overall limit not exceeding 25% of the
    paid-up capital at any time. Further, in case of companies listed on the Innovators Growth Platform (“IGP”), the yearly limit will be 15% and overall limit shall be 50% of the paid-up capital at any time. This enhanced overall limit for IGP shall be applicable for 10 years from the date of company’s incorporation.

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minimum vesting period

SEBI has vide its notification dated 15th June, 2021 removed the minimum vesting period of one year for an employee under the SEBI (Share Based Employee Benefit) Regulations in case of a death of the said employee. Hitherto there was a one year vesting period in case of employee stock options and stock appreciation rights.

The regulations already specified that in case of death of an employee during the vesting period, all the options, stock appreciation rights, benefits etc. shall vest in his legal heirs or nominees. Now taking this further SEBI has relaxed the requirement of minimum vesting period of one year in case of death of any employee. This right shall immediately devolve onto his legal heirs/ nominees even where the one year vesting period is not over.

This is applicable only in case of deaths occurring after 1st April, 2020.


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Issue of ESOP shares to non residents

RBI has issued a notification dated 16th July 2015 wherein it has done away with the 5% limit on the issue of shares under the Employees Stock Options Scheme or sweat equity shares to its employees who are resident outside India. Instead the company has to comply with all the applicable regulations of SEBI/ MCA / RBI in this regard.

The relevant portion of the said notification is reproduced below

On a review, it has been decided that an Indian company may issue “employees’ stock option” and/or “sweat equity shares” to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, provided that :

  1. The scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013, as the case may be.
  2. The “employee’s stock option”/ “sweat equity shares” issued to non-resident employees/directors under the applicable rules/regulations are in compliance with the sectoral cap applicable to the said company.
  3. Issue of “employee’s stock option”/ “sweat equity shares” in a company where foreign investment is under the approval route shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.
  4. Issue of “employee’s stock option”/ “sweat equity shares” under the applicable rules/regulations to an employee/director who is a citizen of Bangladesh/Pakistan shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.

The issuing company is also required to furnish a return in form ESOP within 30 days of the issue to the RBI.

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