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    Employee Stock Ownership Plans. - Iha R Krishna

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    Iha Krishna
    ESOPs allow employees to purchase shares of their company at a predetermined price in the future. [1] Companies establish ESOP trusts that use company contributions or loans to buy existing shares or issue new shares. [2] Employees do not pay taxes on the contributions but are taxed when shares are allotted and later sold. [3] ESOPs benefit both companies seeking to attract, motivate and retain employees, and workers who see the plans as long-term investments.

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    Employee Stock Ownership Plans. - Iha R Krishna

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    Iha Krishna
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    ESOPs allow employees to purchase shares of their company at a predetermined price in the future. [1] Companies establish ESOP trusts that use company contributions or loans to buy existing shares or issue new shares. [2] Employees do not pay taxes on the contributions but are taxed when shares are allotted and later sold. [3] ESOPs benefit both companies seeking to attract, motivate and retain employees, and workers who see the plans as long-term investments.

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    Employee Stock Ownership Plan.

    Original Title

    Issue of ESOP

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    ESOPs allow employees to purchase shares of their company at a predetermined price in the future. [1] Companies establish ESOP trusts that use company contributions or loans to buy existing shares or issue new shares. [2] Employees do not pay taxes on the contributions but are taxed when shares are allotted and later sold. [3] ESOPs benefit both companies seeking to attract, motivate and retain employees, and workers who see the plans as long-term investments.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    11 views2 pages

    Employee Stock Ownership Plans. - Iha R Krishna

    Uploaded by

    Iha Krishna
    ESOPs allow employees to purchase shares of their company at a predetermined price in the future. [1] Companies establish ESOP trusts that use company contributions or loans to buy existing shares or issue new shares. [2] Employees do not pay taxes on the contributions but are taxed when shares are allotted and later sold. [3] ESOPs benefit both companies seeking to attract, motivate and retain employees, and workers who see the plans as long-term investments.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    EMPLOYEE STOCK OWNERSHIP PLANS.

    - Iha R Krishna

    o What Are Employee Stock Ownership Plans?

    An employee stock ownership plan (ESOP) is an employee benefit plan that offers workers
    ownership interest within the said company. It is basically the option or a right that is offered by
    a company to its employees to buy the company’s shares at a pre-determined price in the future.
    Primarily, ESOP is a tool that is used by a company to hold onto its employees and award them
    for their association with the company. ESOP creates a sense of ownership in the mind of the
    staff thus keeping intact their interest in the organization.

    As defined under the provisions of section 2(37) of the Companies Act, 2013, "employees' stock
    option" means the option given to the directors, officers or employees of a company or of its
    holding company or subsidiary company or companies, if any, which gives such directors,
    officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the
    company at a future date at a predetermined price.

    Further, as per clause 2A of SEBI (Employee Stock Option Scheme and Employee Stock
    Purchase Scheme) Guidelines, 1999 “employee stock option” has been defined as- “the option
    given to the whole-time Directors, Officers or employees of a company which gives such
    Directors, Officers or employees, the benefit or right to purchase or subscribe at a future date,
    the securities offered by the company at a predetermined price.

    o How Do ESOPs Work?

    First and foremost, a company, sets up a trust fund, under which it contributes new shares of its
    own stock or cash in exchange of existing shares. The ESOP can borrow money to buy new or
    existing shares, with the company making cash contributions to the plan to allow it to repay the
    loan, and, if the plan borrows money, the company accords to the plan to allow it to repay the
    loan. Contributions to the plan are tax-deductible, hence, employees pay no tax on the
    contributions until they receive the stock when they leave or retire. They can then either sell it on
    the market or back to the company.

    o Taxation under ESOPs

    The Income Tax Act, 1961 has set down the following two stages of taxation for employees
    under an ESOP.
    – Upon allotment of shares following the employee exercises his option on the completion of the
    vesting period; and

    – When the shares allotted to the employee are sold by him.

    When an employee sells the shares that were allotted to him under ESOP, tax is levied on the
    amount of profit or gain arising from such kind of transaction. Profit is taxable under the head
    ‘Capital Gains’. Capital gains can be of two types - ‘Short Term Capital Gains’ and ‘Long Term
    Capital Gains’ depending upon the period of holding of shares.

    o Conclusion

    Undoubtedly, the ESOPs are a very apt method used by companies to attract, motivate and retain
    employees. ESOPs have a twofold benefit, i.e., reducing cash outflow and retaining deserving
    employees for their growth. Employees further see this scheme as a long term investment for
    which they have to compensate with their cash perquisites and bonuses. ESOPs can be beneficial
    to both employees as well as the company if implemented effectively.

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