EMPLOYEE STOCK BENEFIT ADVISORY

ESOP Advisory Services for Startups & Companies in India

Design, value, implement and administer employee stock plans that attract and retain talent and stay compliant. Our ESOP advisory services cover plan design, Companies Act and SEBI compliance, accounting, valuation, employee taxation and cross-border FEMA requirements.

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4equity instruments: ESOP, ESPP, SAR and RSU
7ESOP service areas, from design to cross-border
30+countries our clients come from
426client engagements completed in the last 5 years
01

What Is an Employee Stock Option Plan (ESOP)?

An Employee Stock Option Plan is a scheme in which a company gives employees the right to acquire its shares, or ownership-linked incentives, at a pre-determined price after a vesting period.

ESOPs have become a vital tool for attracting talent, rewarding performance and retaining key people. Start-ups, listed companies and mature businesses all use them to align employees with long-term value creation.

Choosing the right plan is not simple. It depends on the company's stage, industry, the demographics and skills of its people, its culture and its future funding or exit plans. Each choice then carries consequences under company law, securities law, accounting standards, income tax and, for cross-border plans, foreign exchange regulations. We help you formulate, design and implement a plan that meets your objectives and complies with all applicable laws.

02

ESOPs and Alternatives: Choosing the Right Plan

We advise on whether ESOPs or an alternative instrument best suits your goals, in line with the applicable laws and regulations.

InstrumentHow it worksEmployee pays?Typically suits
ESOPOption to buy shares at a fixed exercise price after vestingYes, the exercise priceStart-ups and growth companies
ESPPEmployees buy shares, often at a discount, through a purchase planYes, the purchase priceListed and mature companies
SAREmployee receives the increase in share value, in cash or sharesNoCompanies that want to limit dilution
RSUShares granted outright once vesting conditions are metUsually no, or a nominal amountMultinationals and listed groups
03

Our ESOP Advisory Services

1

Plan Suitability

We advise on ESOPs versus ESPPs, SARs and RSUs, the size of the pool, eligibility, vesting schedules, exercise periods and treatment on exit.

2

Planning & Employee Communication

  • Structuring the plan around company goals
  • Drafting the ESOP policy and scheme rules
  • Employee training and communication sessions
  • Tracking grant, vesting and exercise schedules
3

Accounting of ESOPs

We advise on accounting at the time of grant and on the annual expense to be recognised, under Ind AS 102 or the ICAI Guidance Note on share-based payments, as applicable.

4

Valuation of ESOPs

  • At grant: fair value for the accounting expense, by a registered valuer or actuary
  • At exercise: fair market value to compute the employee's taxable perquisite. For unlisted shares, this is determined by a SEBI-registered Category I Merchant Banker.

Business valuation services →

5

Regulatory & Secretarial Compliance

  • Drafting the ESOP scheme under the Companies Act, 2013
  • Shareholder special resolution and explanatory statement
  • Filing the resolution in Form MGT-14, where applicable
  • Register of employee stock options in Form SH-6
  • Allotment on exercise: board resolution, Form PAS-3 within 30 days, and share certificates
  • SEBI SBEB & Sweat Equity Regulations, 2021, for listed companies
6

Direct Tax Compliance

  • Computing the taxable perquisite on exercise
  • TDS on perquisites and TDS return filing
  • Capital gains computation for employees on sale
  • Tax deferral for eligible start-ups
  • Deductibility of ESOP expense for the company
7

Cross-Border ESOPs

  • Legality and compliance under FEMA, 1999 and the Overseas Investment rules
  • Indian employees receiving shares of a foreign parent
  • Grants to non-resident employees and RBI reporting
  • Transfer pricing and recharge arrangements between group entities
04

The ESOP Lifecycle and What Each Stage Requires

Design

Plan type, pool size, eligibility, vesting, exercise price and exit terms are agreed with management.

Approval

Board approval, a shareholders' special resolution with disclosures, and filings with the ROC.

Grant

Grant letters are issued, the options are valued at fair value, and the accounting expense begins.

Vesting

A minimum one-year vesting period applies under the Companies Act. Schedules and leavers are tracked.

Exercise & Allotment

The FMV is valued, the perquisite is computed and TDS deducted, shares are allotted, and PAS-3 is filed.

Sale or Exit

Capital gains for employees, buy-backs or liquidity events, and treatment of unvested options.

05

Key ESOP Rules in India at a Glance

  • Shareholder approval. An unlisted company needs a special resolution under Section 62(1)(b) of the Companies Act, 2013 to issue ESOPs.
  • Minimum vesting. There must be at least one year between the grant and the vesting of options.
  • Promoters and large shareholders. Generally not eligible for ESOPs, though eligible start-ups get relaxations for a period after incorporation.
  • Two tax events for employees. The perquisite is taxed as salary on exercise (FMV minus exercise price), and capital gains are taxed when the shares are sold.
  • Start-up tax deferral. Employees of eligible start-ups can defer tax on the ESOP perquisite until the earliest of a specified period, the sale of the shares, or leaving the company.
  • Listed companies. These must also follow the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.
06

Who We Advise

Venture-funded start-upsUnlisted growth companiesListed companiesIndian subsidiaries of foreign groupsForeign parents granting RSUs to Indian staffPE-backed businesses

Hiring senior leaders with equity? Our executive search team can help structure competitive offers.

07

Why Choose AAPT & Associates for ESOP Advisory

  • One team across every discipline. Company law, accounting, valuation, tax and FEMA expertise under one roof.
  • Start-up and multinational experience. From first-time ESOP pools to global RSU plans for Indian employees.
  • End-to-end administration. Grant letters, registers, filings, TDS and employee queries, handled year after year.
  • Clear employee communication. Training that helps your people understand and value their equity.
  • Payroll-linked tax compliance. Perquisite TDS is integrated with your payroll.
  • Big 4-trained leadership. Partners with 14+ years each in audit, tax and advisory.

Discuss Your ESOP Plan

08

Frequently Asked Questions

How are ESOPs taxed in India?
ESOPs are taxed at two stages. On exercise, the difference between the fair market value of the shares and the exercise price is taxed as a salary perquisite, and the employer deducts TDS. When the employee later sells the shares, the gain over that fair market value is taxed as capital gains.
What is the minimum vesting period for ESOPs in India?
Under the Companies Act, 2013 and the related rules, there must be a minimum period of one year between the grant of options and their vesting. Companies can set longer schedules, commonly four years with a one-year cliff.
Who can value ESOPs for tax purposes?
For unlisted shares, the fair market value on the date of exercise for computing the perquisite must be determined by a SEBI-registered Category I Merchant Banker. Valuation at grant for accounting is usually carried out by a registered valuer or actuary.
Can a private limited company issue ESOPs?
Yes. A private or unlisted public company can issue ESOPs under Section 62(1)(b) of the Companies Act, 2013, with a special resolution of shareholders and the disclosures required under the rules.
Can Indian employees receive ESOPs or RSUs of a foreign parent company?
Yes. Resident employees can acquire shares of a foreign parent under employee benefit schemes, subject to FEMA and the Overseas Investment rules and the related reporting. The perquisite is also taxable in India, and recharge arrangements need transfer pricing review.
What is the difference between ESOPs, SARs and RSUs?
An ESOP gives the right to buy shares at a fixed price. A SAR pays the increase in share value, in cash or shares, without the employee paying an exercise price. An RSU is a grant of shares that vests once conditions are met, usually at little or no cost to the employee.

Planning to launch or fix an ESOP plan?

Tell us about your company and your goals. Our team will recommend the right instrument and outline the compliance roadmap, at no cost and with no obligation.

Book a Free ESOP Consultation