Coverage

Employee Benefit Schemes

& Sweat Equity Shares
NEED FOR EMPLOYEE BENEFIT SCHEMES?

No Business can ever exist unless it has three resources to support it i.e.
Man, Money and Machines.

Among all, Human Beings are considered central to the achievement of

productivity, well above equipment, technology and money.

Along with looking for value addition from employees, “giving back” to
them is also quite essential as it develops a feeling of belongingness
towards the company.

To this end and intent, companies offer various employee benefit schemes
with pre-determined objectives .
OBJECTIVES OF EMPLOYEE BENEFIT SCHEMES?

To motivate the employees to contribute to the growth and profitability of

the Company.

To retain the key employees and reduce the attrition rate of the Company.

To achieve sustained growth and the creation of shareholder value by

aligning the interests of the employees with the long term interests of the
Company.

To create a sense of ownership and participation amongst the employees to

share the value they create for the Company in the years to come, and

To provide additional deferred rewards to employees.

 RECENT ESOP POLLING RESULTS
F.Y. 2022-23
Yes No

ESOP as the best way to recognize, retain 69% 31%

and reward employees
Yes No
ESOP is considered as a part of hiring 100% 0%
strategy
Rewards Variable

ESOP as the form of Compensation 90% 10%

All Selected
employees KMP employee
All Category of employees are covered
50% 25% 25%

ESOP provide benefits to employees 37% 33% 20% 10%

Ownership Wealth Motivation Balanced
Interest Creation compensation
 MAJOR TERMS TO UNDERSTAND

“Grant” Offering of ESOP Options from Company to the

Employee(s).

“Vesting” Process through which employee becomes eligible

to exercise the options.

“Exercise” Stage when employee applies to the Company for

getting the shares allotted.

“Allotment” When Company issues shares to the employee

“Sale” means selling of shares by the employee in the market.

LIFE CYCLE OF ESOP
Formulation of ESOP Plan/Scheme

Grants of Options.

Acceptance of Grant

Vesting of Granted Options

Exercise of Options

Allotment of New Shares by the Company

Sale of Shares by Employees

 PRACTICAL CONSIDERATIONS FOR
DESIGNING EMPLOYEE BENEFIT SCHEME

Employee Coverage

Type of plan
The key attributes
to be established Route of the Scheme
for designing a
stock-based Period of Vesting
benefit plan are:
Vesting Conditions

Exercise Period
 COVERAGE OF EMPLOYEES
Defined under Regulation 2(i) of SEBI (Share Based Employee Benefits and Sweat Equity)
Regulations, 2021
“Employee” Means

an employee* as designated by the company, who is exclusively working in India or outside India; or

a director of the company, whether a whole time director or not, including a non-executive director who
is not a promoter or member of the promoter group, but excluding an independent director; or

an employee as defined in sub-clauses (i) or (ii), of a group company including subsidiary or its
associate** company, in India or outside India, or of a holding company of the company

But does not include

an employee who is a promoter or a person belonging to the promoter group; or

a director who, either himself or through his relative or through any body corporate, directly or indirectly,
holds more than ten per cent of the outstanding equity shares of the company.

• *“Permanent Employee of the Company "has been covered as per Companies Act, 2013.
• To motivate ESOPs in Startups, Government has even allowed to offer ESOPs to Promoters & Directors holding more than 10% of the
outstanding Equity Share capital of the company – for a period of 10 (Ten) years from the date of Incorporation or Registration.
• ** Associate Company has been omitted under Companies Act, 2013 vide Notification dated 18.03.2015.
 TYPES OF EMPLOYEE BENEFIT
SCHEME
Employee Stock
Options

Equity Based Plans

Employee Stock
Purchase

Restricted Stock
Types of Employee Units
Stock Benefit
Schemes
Stock Appreciation
Rights (Equity)
Stock Appreciation
Rights
Cash Based Plan
(Cash)/Phantom
Stock
 EMPLOYEE STOCK OPTION PLAN (ESOP)
• It is right offered by a Company to its
Employees to purchase equity shares of it
company at a discounted price.

• Upon completion of specified period of ESOP

service, employees can exercise the vested SAR
options to get shares, by paying the pre- RSU
determined exercise price. ESPS
Other
• Employee Stock Option Schemes are the most
commonly used form for employee
ownership in more than 70% organizations

VIEW TO BE CONSIDERED:

• As per market practice ESOP is an integral compensation tool for retaining and employing human
resource.

• ESOP is a repetitive practice intended to continuously appraise and incentivize the employees.

06/05/2023
 RESTRICTED STOCK UNIT SCHEME (RSU)
• Under RSUs an Employee is awarded with the shares subject to fulfillment of certain
underlying conditions.

• Under this scheme, full rights may be conditional and predicated on the occurrence
of certain events e.g. continued employment and/or achievement of certain business
measures.

Based on vesting conditions RSUs can be broadly categorized as:

 
 Loyalty Based:
RSU’s are granted with an objective to retain an employee in an organization for a
specific number of year.

 Performance Based:
RSU’s are granted with an objective to motivate an employee for achieving a pre-
determined performance target linked with:
• individual performance; or
• organizational performance; or
• combination of both
 RESTRICTED STOCK UNITS (RSU)
VIEW TO BE CONSIDERED:

• Higher value to employee- Unlike ESOPs, the exercise price of which is based on
the market value of the shares, the exercise price of RSUs is the par value of the
shares.

• Lower Dilution- RSUs are granted to only selected employees aligned towards
specific tangible goal.

• Granting RSUs is a selective practice, as a tool to give target driven incentive to the
employees.

The principle message conveyed to the employees is that, if they achieve

the performance target, they share the value created by them
STOCK APPRECIATION RIGHTS (SAR)
A stock appreciation right is a form of compensation that gives the right to the
monetary equivalent of the appreciation in the value of a specified number of shares
over a specified period of time.

Based on mode of settlement SAR can be broadly categorized as follows:

 Settled in Cash:
 Appreciation amounting to the difference between Exercise Value and Base
value (less applicable taxes) is directly transferred to the bank account of an
employee or through such other modes as prescribed.

 Settled in Equity:
 Appreciation amounting to the difference between Exercise Value and Base
value (less applicable taxes) is converted into Equity shares which are then
allotted the employee.
 STOCK APPRECIATION RIGHTS (SAR)
VIEW TO BE CONSIDERED:

• It is a retention tool, not driven towards a particular target.

• Low Dilution Risk- Since the benefit is based on the incremental value the shares
allotted are less and in case of cash settlement there is no dilution

• Return is not assured - Stock appreciation right is a deferred compensation that is

linked with the market value of the company's stock.

The principle message conveyed to the employees is that, if they stay long
enough till vesting, they stand to gain significantly through increase in
company’s market value
 EMPLOYEE STOCK PURCHASE SCHEME (ESPS)
• Employee Stock Purchase Schemes allow Employee to purchase Company’s shares at
a discount from Fair Market Value.

The terms of the Plan determines the tenure and price for possession of the Company’s
shares by the Employees.

• ESPS is being framed by banks for offering shares as a part of public holding.

VIEW TO BE CONSIDERED:

• ESPS is a reward plan intended to appraise and incentivize the employees for their
past contributions
• Ascertained Benefit- the shares are allotted immediately so the benefit received is well
ascertained

The principle message conveyed to the employees is that they are also
considered as business owners based on their proven performance.
 TYPES OF PLAN AS PER CURRENT
MARKET PRACTICES

LEVELS OF MARKET PRACTICES

MANAGEMENT

• Top Level Management • Restricted Stock Units

Level 1 Level 1

• Restricted Stock Units

• Middle Level Management Level 2 • ESOP’s
Level 2

• Lower Level Management • ESOP’s

Level 3 Level 3
 RECENT ESOP POLLING RESULTS
F.Y. 2022-23

Before first round After Funding

At what stage Start-up’s prefer to introduce 67% 33%

ESOP ’usually

Till options are Around

exercised 5-10 years
Stock based employee benefit plan ideally runs
what period of time 66% 32%
 EQUITY INCENTIVE PLANS
IMPLEMENTING MODES

Direct
Route Trust
Route

Now, the Companies can make changes in the route of the Scheme (i.e. Direct Route to Trust
Route or Vice-Versa) subject to the Shareholders approval.
DIRECT ROUTE

Direct
Route

1 Options to buy shares

2 Exercise of options Employe

Company
3 Issue of shares e
TRUST ROUTE
Trust
Route
1
Grant of Loan for 4
Payment of subscription Exercise of options
Money Employe
e
6 Welfare 5
Repayment
of Loan Trust Transfer of
Shares

Employe
Company 2 Direct Issue of Shares
e
3 Issue of options
ACQUISITION OF SHARES BY TRUST
Trust can acquire shares by:

Secondary Market Fresh Subscription

Acquisition from Company

From Stock From existing

Exchange shareholders Directly from
(for listed (for unlisted the Company
companies) companies)
 VESTING PERIOD
Vesting Period is the period during which the employee earns the
Right to Exercise the Benefit granted to him

• The term of the plan includes

Vesting Period which ranges More than 3 years upto 5 years
between 3-4 years from the
date of grant of the options;
More than 1 year upto 3 years ESOP
SAR
• Minimum Vesting Period RSU
requirement being 1 year Upto 1 year
from the date of grant.
0% 50% 100%
• Person should be in the
Employment of the Company.

06/05/2023
 VESTING CONDITIONS
The employee earns the right to convert option to shares during the
vesting during subject to certain vesting conditions

 The vesting conditions may be:

 performance based; or
 market based

 Performance based vesting conditions may further be linked to

performance of :
 the employee,
 department/business unit
 Company as a whole
 a combination of the above
 VESTING SCHEDULE
The vesting schedule is the timetable over which an employee
accrues the right to keep the options that have been awarded
Types of Vesting:

 Graded Vesting:

• Graded vesting is the process by which employees is vested with the benefits over
time in specified intervals.

• Certain portion of the options granted vest with each completed year of service
during the vesting period.

 One Time or Cliff Vesting:

• Cliff Vesting means that the employees become immediately 100 percent vested
upon completion of specified period of service.

• If the employee leaves the organization before that specified time, the options
granted would be forfeited and lapse.
 PRICING CRITERIA FOR EXERCISE PRICE
To exercise an option, the employee pays an exercise price to the
company and receives shares for each option exercised.
Base Price

Listed Company Unlisted Company

• Market price as on date of grant
(Closing Price) ; or
A price calculated on the
• Face value of the shares; or
basis of valuation done at the
time of Grant by an
• Discounted Fair Value of the Company;
independent valuer.
or

• Any other price selected by the

Company

Companies are free to decide the Exercise price, discount / premium over it
however, the Exercise price shall never go below the Par Value of Shares.
 EXERCISE PERIOD
Exercise Period means the time period after vesting within which an
employee should exercise his right to apply for shares against the vested
option in pursuance of the Plan
The exercise period may be Time Based or Event Based:

Time Based
• Under this the options can be exercised after completion of the specified period
after vesting of options.
• The exercise may be done immediately upon vesting or after completion a certain
time period, in whole or in part during the exercise period.
• No specific time period has been prescribed under the law for Exercise of
Options/ Units / Offer etc.

Event Based
• In case of unlisted companies since the shares are not traded on stock exchange
the company may find practically difficulty in providing exit to the employees
upon exercise.
• The company may provide exercise option to the employee on occurrence of
certain specified exit events.
 ALLOTMENT OF SHARES
Allotment means issuance of shares to the employee by Company against
the number of options exercised under the Scheme.
Direct Route:

• Upon valid exercise of options by the employee, allotment of new shares will
be made by the company directly to the employees, upon receipt of exercise
price and applicable taxes and other charges if any, in the name of the
Company.
• The said allotment is made by the Company subject to the applicable laws.
• The Company shall intimate the employee about such allotment.
• After such allotment, the employee shall become a member of the Company.

Trust Route:
• When the Trust acquires shares through fresh subscription from the company,
i.e direct allotment of shares is made to the Trust.
• Upon valid exercise of options by the employee, the Trust shall transfer the
shares to the employees, upon receipt of exercise price in the name of the Trust
and Taxes payable in the name of the Company.
• Under secondary acquisition , no fresh allotment of shares is involved.
 SALE/EXIT OF SHARES
Sale of shares can be freely done by employee in the market .

Listed Company Unlisted Company

• The employee can freely sell their shares on occurrence of any liquidity
events.
Shares can be
directly sold in the
 Following may be considered as liquidity events:
Market.
• Acquisition by any company, person, entity or group of a controlling stake
in the Company.
• The successful listing of the Company’s share on a recognized stock market 
• In case of private equity investment in the Company 
• In case of Investments by NRIs and VCs 
• Investment by High Net Worth Individuals 
• Merger, de-merger, spin-off, acquisition, consolidation, amalgamation, sale
of business, dissolution or other reorganization of the Company in which
the Shares are converted into or exchanged for Cash
• Sale, lease or exchange of all or substantially all of the assets or undertaking
of the Company 
• Any liquidity event created by the management of the Company itself.
 PROCEDURE FOR ISSUANCE
LISTED COMPANY
• Drafting of the Scheme
Step
1

• Hold a Board Meeting to consider Employee Benefit Scheme

Step
2

Step • Hold General Meeting of the Shareholders for approval of the Scheme.
3
• Obtain In-principal application to the Stock Exchange(s) for seeking their approval for the
Step issuance of the equity Shares under Employee Stock Option Scheme for Listed Company.
4

• Make grants to employees identified by the Board/Compensation Committee eligible to

Step
participate ion the scheme.
5

Step • Issue of grant and vesting letters to the employees from time to time .
6

• Hold a Board Meeting at the suitable interval during the exercise period for allotment of
Step
7 shares on options exercised by the Employees in accordance with the exercise forms received.

Step • Listing application to be filed by the Listed company with the Stock Exchange(s) to get the
8 shares so allotted listed (in case of direct allotment) and Dispatch of letter of allotment.
 PROCEDURE FOR ISSUANCE
UNLISTED COMPANY
• Drafting of the Scheme
Step 1

• Hold a Board Meeting to consider Employee Benefit Scheme

Step 2

• Hold General Meeting of the Shareholders for approval of the Scheme.

Step 3

• Hold a Board Meeting for making grants to employees identified by the Board of Directors
Step 4 on who are eligible to participate in the scheme.

• Issue of grant and vesting letters to the employees from time to time .
Step 6

• Hold a Board Meeting at the suitable interval during the exercise period for allotment of
Step 7 shares on options exercised by the Employees in accordance with the exercise forms
received.

Step 8 • Dispatch of letter of allotment.

TAX TREATMENT IN ESOP’S

TAX TREATMENT

In the hands of
Employee

At the time of transfer of

At the time of Allotment: shares;
Perquisite Value= FMV on the Capital Gain= Sales Price of
date of exercise of options- Shares-FMV of shares at the
Exercise Price time of Exercise
 TAX TREATMENT IN ESOP’S

Example : AT THE TIME OF EXERCISE

(Perquisite Tax)
FMV of shares on Exercise :- Rs.100/-
Exercise Price :- Rs.10/-
Perquisite Value :- (Rs.100 – Rs.10) = Rs.90/-
Tax @ Rs.20% :- Rs.18/-
In the hands of
Employee
Example : AT THE TIME OF TRANSFER OF SHARES
(Capital Gain Tax)
Sale value :- Rs.120/-
Holding period less than 1 year
Short Term Capital Gain
Gain Value: - (Rs.120– Rs.100) = Rs.20
Tax @ 15% :- Rs.3/-
 ACCOUNTING TREATMENT IN ESOP’S
REGULATORY FRAMEWORK

Ind-As 102 / ICAI Guidance Note 18

• Employee Compensation Expense (equivalent to Price Discount)= Market Value- Price at

which Shares are offered

Allowable Expense during the relevant

Accounting Period in which the Shares are
issued.

Direct Impact on Profit

& Loss Account
Example :
Current Value Rs.55/-
Offer price is Rs.10/-

Then Price Discount/Employee Compensation Expense to be booked is Rs.44/-.

VALUATION TREATMENT IN ESOP’S
For ESOPs, there are basically 2 types of Valuations:

 Accounting Valuation: This valuation is required for calculating Employee

Compensation Cost during the vesting period.

 Accounting valuation can be performed by Merchant Banker/Registered

Valuer.

 Perquisite Valuation: This valuation would be conducted only in case of

unlisted Companies, at the time of Exercise of Options by the Employee to
know the value of the perquisite in employee’s hands.

 Perquisite valuation is performed by Merchant Banker/Registered Valuer.

 APPLICABLE LAWS GOVERNING
EQUITY INCENTIVE PLANS
Companies Act, 2013 along with Rules;
SEBI (Share Based Employee Benefits & Sweat Equity ) Regulations, 2021
(In case of Listed Company)
SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015
(In case of Listed Company)
SEBI (Prohibition of Insider Trading) Regulations, 2015
(In case of Listed Company)
Income Tax Act, 1961 (including Rules and Circulars issued there under);

Foreign Exchange Management Act, 1999 (including Rules and Regulations

enacted there under);
((v(When foreign employees are covered)
Applicable Accounting Standards- Ind AS 102/ Guidance Note - 18
 SWEAT EQUITY
Another way to reward Star Performers
SWEAT EQUITY – IN A GLANCE
Simply put, these are equity shares
offered to selected employees and
directors of a company for their:

Extraordinary Value addition

contribution and made to business or
hard work of an contribution
employee or towards gaining
director in intellectual
completion of a property rights Issued at a
project discount or
for
consideration
Technical know-how or expertise in an area of
other than
the business
cash
 RELEVANT TERM

• Value additions: means actual or anticipated economic benefits derived or to be

derived by the company from an expert or a professional for providing know how or
making available rights in the nature of Intellectual property rights, by such person
or to whom sweat equity is being issued for which the consideration is not paid or
included in the normal remuneration payable under the contract of employment , in
case of an employee.
 TO WHOM IT CAN BE GIVEN
Employees

Ordinary Employees* of the Company Employees(who belong to Promoter /

Promoter Group)
Working in India or Outside India &

Directors of the Company

(whether whole time or not)

*“Permanent Employee of the Company “ & Employees or Director of Subsidiary or Holding company in
India or outside India has been covered as per Companies Act, 2013.
REGULATORY ASPECTS-IN TERMS OF
ISSUANCE

Unlisted Listed
Company Company

•Section 54 of the •SEBI (Share

Companies Act Based Employee
2013 Benefits and Sweat
• Rule 8  of the Equity )
Companies (Share Regulations, 2021
Capital and along with
Debentures) Rule, Companies Act,
2014 2013
QUANTUM OF SWEAT EQUITY-UNLISTED
A company can issue sweat equity shares up to the higher of the following :

15% of its existing Equal to the value Rs

paid-up equity share OR 5 cr.
capital in a year

Further, the sweat equity shares shall not exceed 25% of the paid-up
equity capital of the issuing company at any point in time.

1. Exception for Start-ups-They can issue sweat equity shares of up to 50% of the paid-up capital
within 10 years from the date of its registration or incorporation.

2. The maximum quantum of Sweat Equity Shares shall not exceed fifteen percent of the existing paid
up equity share capital in a year or shares of the issue value of rupees five crore, whichever is higher.
(issuance of sweat equity shares in the Company shall not exceed twenty five percent, of the paid up
equity capital of the Company at any time.
 QUANTUM OF SWEAT EQUITY-LISTED

A company can issue sweat equity shares up to the following limits :

Minimum : Upto 15% of its existing paid-up equity share capital in a

year

Maximum: Further, the sweat equity shares shall not exceed 25% of the
paid-up equity capital of the issuing company at any point in time.

 Acquisition of Sweat Equity Issue shall be subject to the provisions of SEBI (SAST) Regulations
2017 , SEBI (ICDR) Regulation 2018, Securities Contracts (Regulation) Act, 1956, Securities
Contracts (Regulation) Rules, 1957.
 PRICING OF SWEAT EQUITY

Listed Company Unlisted Company

Pricing requirements shall be as mentioned in
preferential issue as per SEBI (ICDR), 2018. At a price determined by a
registered valuer as the fair price
giving justification for such
Broadly Pricing
is categorized in valuation.
2 categories

Frequently Infrequently
Traded Traded

Higher of the VWAP for

90TD /10TD Independent
If AOA provide method Registered
of pricing which is Valuer’s
higher than the above, Report
then such price shall be
considered
 PRICING OF SWEAT EQUITY
Listed Company
164 (1) 165 166 166A
Frequently traded Adjustments in pricing
shares Pricing of
- Frequently and
infrequently Other conditions for pricing
Listed for more than 90 traded shares Infrequently traded
Trading Days shares

 Pref. issue resulting in

change in control or
Price determined for a allotment of more than
preferential issue as 5%, on fully diluted
Higher of the VWAP
per Reg 164 or Reg basis, to an allottee or
for 90TD /10TD
165, shall be subject to allottees acting in
If AOA provide method Independent
appropriate concert shall require a
of pricing which is Registered
adjustments, if the valuation report from
higher than the above, Valuer’s Report
issuer makes Rights Independent Registered
then such price shall be
Issues, Split of Shares, Valuer
considered.
Consolidate Shares,  If change in control,
reclassify etc. valuation report to cover
guidance on control
premium

*FREQUENTLY TRADED SHARES means shares, in which the traded turnover on any stock exchange during 240 trading days
preceding the relevant date, is at least 10% of total number of shares of such class of shares.
 LOCK IN PERIOD- SWEAT EQUITY

Listed Company Unlisted Company

Pricing requirements shall be as mentioned in
preferential issue as per SEBI (ICDR), 2018.

18 Months
Promoters from Trading Date of For a period
Approval Date Allotment of 3 years
Equity Shares
Allotted
6 Months from
Public Trading
Approval Date
SWEAT EQUITY-CEILING ON MANAGERIAL
REMUNERATION
IF THE SWEAT EQUITY The amount of sweat equity shares issued shall
SHARES ARE ISSUED be treated as part of managerial Remuneration, if
PURSUANT the following conditions are fulfilled:—
TO
ACQUISITION OF VALUE a) the sweat equity shares are issued to any director or
WHICH DOES NOT TAKE manager; and
FORM OF AN ASSET
a) they are issued for consideration other than cash, which
does not take the form of an asset which can be carried to
the balance sheet of the company.

Note: The company shall refer the requisite resolutions passed

in this respect to ensure that maximum limit of remuneration
is not breached.

IF THE SWEAT EQUITY • The value of the asset, as determined by the valuation
SHARES ISSUED PURSUANT report, shall be carried in the balance sheet as per the
TO Accounting Standards.
ACQUISITION OF AN ASSET
• Here no part of consideration shall form part of managerial
remuneration.
 PROCEDURE FOR ISSUANCE
LISTED COMPANY
Convening of Board Meeting for approval of Sweat Equity Issue

Dispatching notice of General Meeting

Making an application for In-principle Approval from the Stock Exchanges

Dispatch of Notice for calling Board Meeting for allotment of sweat

equity shares to the Director of the Company

Filing of all necessary Disclosures pursuant to SEBI (LODR)

Regulation, 2015.
 PROCEDURE FOR ISSUANCE
LISTED COMPANY

Convening Board Meeting for allotment of shares

Filing Sweat Equity statement to Stock Exchanges

Filing of Listing Application with BSE and NSE

Filing application to Depositories (NSDL/CDSL) for capital

admission and lock in of shares

Filing of Trading applications with BSE and NSE

 PROCEDURE FOR ISSUANCE
UNLISTED COMPANY
• Obtain a valuation report from the registered valuer who shall provide a proper
report addressed to the Board of Directors with justification for such valuation
Step 1

• Convening of Board Meeting for approval of Sweat Equity Issue

Step 2

• Dispatching notice of General Meeting for approval of Sweat Equity Issue

Step 3

• File a copy of special resolution with ROC within 30 days of the passing of resolution
in Form MGT-14.
Step 4
• Hold a meeting of the Board within a period of not more than 12 months from the
date of passing of the special resolution: To consider the allotment of sweat equity
Step 5 shares and issue of allotment letters and share certificates
 TAXATION ASPECTS
(FOR EMPLOYEES)
STAGES TAX TREATMENT
Allotment of shares
Taxed as perquisite in the hands of Employees which is computed as the difference

between the Fair Market Value of the share on the date of allotment and the

consideration paid, if any. The employer is required to withhold tax at source in

respect of such perquisite.

Sale of shares Long Term Capital Gain Tax on the incremental gain (i.e. difference between
sale consideration and the FMV on the date of allotment of shares).

Note: No Taxation to be Bourne by Company

APPLICABLE LAWS GOVERNING
SWEAT ISSUANCE
Companies Act, 2013 along with Rules;
SEBI (Share Based Employee Benefits & Sweat Equity ) Regulations, 2021
(In case of Listed Company)
SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015
(In case of Listed Company)
SEBI (Prohibition of Insider Trading) Regulations, 2015
(In case of Listed Company)
Income Tax Act, 1961 (including Rules and Circulars issued there under);

Foreign Exchange Management Act, 1999 (including Rules and Regulations

enacted there under);
((v(When foreign employees are covered)
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
 ESOP v/s. Sweat Equity
(bird’s - eye view)
ESOP SWEAT EQUITY SHARES
All employees except promoter/promoter All employees , directors , even promoters
group
company can grant ESOP at any point of can issue only after remaining in business
time after incorporation for 1 year
ESOPs are issued in the form of an issued as consideration for providing IPR
incentive and as a retention plan or know-how or any value additions to the
company. 
The consideration for ESOP has to be paid The consideration for sweat equity shares
in cash. is other than cash or at a discount or for
consideration other than cash
The company decides the lock-in period.  The lock-in period* is three years(as per
Companies Act, 2013)
The company decides the exercise price. A registered valuer determines pricing
guidelines.

*Lock-in period in case of Listed Company shall be as per SEBI (SBEB &SE) Regulations, 2021
 Mohini Varshneya Anshuma Dev
Partner & Head – ESOP Assistant Manager– ESOP
Services & Services &
Insider Laws Insider Laws
M: + 91 9971673332 M: + 917014628406
T: +91 1140622231 T: +91 1140622244
[email protected] [email protected]
www.corporateprofessionals.com www.corporateprofessionals.com