Answer: ESOS is an option given by a company to its employees and directors to buy its shares at a future date at a predetermined (usually lower) price.
Under Section 2(37) of the Companies Act, 2013, an employee stock option means the option given to directors, officers or employees of a company, or of its holding or subsidiary company, which gives them the benefit or right to purchase or subscribe for shares of the company at a future date at a pre-determined price.
- Purpose: to reward, motivate and retain employees and give them a sense of ownership in the company.
- Approval: the scheme must be approved by the shareholders by a special resolution.
- Vesting period: there must be a minimum period of one year between grant of the option and vesting (the right to exercise it).
- Exercise: the employee may exercise the option after vesting by paying the exercise price; the option is voluntary, and the employee may let it lapse.
- Not transferable: the option cannot be transferred, pledged or mortgaged.
- Eligibility: promoters and directors holding more than 10% of the equity shares are not eligible.
- Lock-in: shares issued may be subject to a lock-in period, and the company must comply with SEBI regulations if listed.
