{"id":13889,"date":"2023-08-10T06:11:00","date_gmt":"2023-08-10T00:41:00","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=13889"},"modified":"2025-04-02T08:09:16","modified_gmt":"2025-04-02T02:39:16","slug":"what-is-an-employee-stock-option-plan-esop","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/what-is-an-employee-stock-option-plan-esop\/","title":{"rendered":"What is an Employee Stock Option Plan (ESOP)?"},"content":{"rendered":"<h2><strong>About Employee Stock Option Plan (ESOP)<\/strong><\/h2>\n<p>&nbsp;<\/p>\n<ul>\n<li>Employee Stock Option Plan &#8211; which is <strong>also called Employee Stock Ownership Plan<\/strong> in India is a <strong>benefit plan<\/strong> that <strong>offers employees the right to buy company shares at a predetermined price.<\/strong><\/li>\n<li><strong>Purpose<\/strong>:\n<ul>\n<li>It&#8217;s a tool companies use to <strong>attract, retain, and reward employees<\/strong>.\u00a0<\/li>\n<li>ESOPs help to <strong>align employees&#8217; interests with the company&#8217;s growth<\/strong> and success.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Granting of Options:<\/strong>\n<ul>\n<li>Under an ESOP, eligible <strong>employees are granted the right, but not the obligation<\/strong>, <strong>to purchase company shares at a predetermined price<\/strong>, known as the &#8220;<strong>exercise price&#8221; or &#8220;strike price.&#8221;<\/strong><\/li>\n<li>This price is <strong>typically set at a discount to the current market price<\/strong> of the company&#8217;s shares.<\/li>\n<li>Employees <strong>have to wait for a certain time period \u2013 known as the vesting period<\/strong> \u2013 <strong>before they can exercise the right<\/strong> to purchase those specified number of shares.\u00a0<\/li>\n<\/ul>\n<\/li>\n<li><strong>All companies other than listed companies<\/strong> should <strong>issue it in accordance with the provisions of the Companies Act, 2013 a<\/strong>nd Companies (Share Capital and Debentures) Rules, 2014.<\/li>\n<li><strong>In the case of listed companies<\/strong>, they should <strong>issue in accordance with the Securities and Exchange Board of India Employee Stock Option Scheme Guidelines<\/strong>.\n<ul>\n<li><strong>To Whom Can The ESOP Be Issued?<\/strong> <strong>Rule 12(1) of Companies (Share Capital and Debentures) Rules, 2014<\/strong> states that ESOP can be issued to the following employees-<\/li>\n<li><strong>A permanent employee<\/strong> of the company who is <strong>working in India or outside India<\/strong>.<\/li>\n<li><strong>A Director of the company<\/strong>, including a whole-time or part-time director but not an independent director.<\/li>\n<li><strong>A permanent employee or director of a subsidiary company in India or outside India<\/strong>, or holding company, or an associate company.<\/li>\n<\/ul>\n<\/li>\n<li><strong>A company cannot issue ESOP to the following employees-<\/strong>\n<ul>\n<li>An <strong>employee who belongs to the promoter group<\/strong> or <strong>is a promoter of the company.<\/strong><\/li>\n<li><strong>A director who either himself or through any body corporate<\/strong> or through his relative <strong>holds more than ten per cent of the outstanding equity shares<\/strong> of the company, whether <strong>directly or indirectly.<\/strong><\/li>\n<li>However, the <strong>above two conditions do not apply to Startup Companies for a period of ten years<\/strong> <strong>from the date of its incorporation<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3>Q1)\u00a0What is Equity Security?<\/h3>\n<p>An equity security, often referred to simply as &#8220;equity,&#8221; represents ownership in a company or corporation. When you hold equity in a company, you are considered a shareholder, which means you have a partial ownership stake in that company. Equity securities are a type of financial instrument that allow individuals, institutions, and investors to invest in and participate in the success (or failure) of a company.<\/p>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/www.tribuneindia.com\/news\/business\/startups-mpspanel-for-making-esops-non-taxable-till-sold-534055\" target=\"_blank\" rel=\"nofollow noopener\"><u>Startups: MPs\u2019panel for making ESOPs non-taxable till sold<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Employee Stock Option Plan is a benefit plan that offers employees the right to buy company shares at a predetermined price.<\/p>\n","protected":false},"author":5,"featured_media":13890,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-13889","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-prelims-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/13889","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=13889"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/13889\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/13890"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=13889"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=13889"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=13889"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}