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Home / Company Law & Secretarial Services / ESOP Scheme Set-up
Last updated: 2 October 2026
An ESOP lets you reward and retain employees with a stake in the company. Our team designs the scheme with you, drafts the plan and grant documents, and handles the approvals, registers and filings under the Companies Act.
For unlisted companies, ESOPs are governed by section 62(1)(b) of the Companies Act, 2013 and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014. Key rules:
Tax arises for the employee at exercise (as a perquisite) and again on sale (as capital gains). Eligible startups allow deferral of the tax at exercise. Listed companies follow SEBI’s share-based employee benefits regulations instead.
Based on the Companies Act, 2013 and the rules made under it. Last updated: 27 September 2026.
Main rule for ESOPs in unlisted companies
Minimum vesting period
Needed to approve the scheme
Directors holding more than this are excluded, except in startups
Period from incorporation during which startups can grant to promoters
Register of employee stock options
Most issues surface at a funding round or an exit.
Options promised in offer letters without shareholder approval.
Options granted to promoters or large holders outside the startup exception.
No register of grants, making the cap table unclear to investors.
Other employee equity structures.
Administering options through a trust.
Cash-settled equity rewards.
Issuing shares to investors.
Room for the ESOP pool.
Pool, vesting, pricing and exit terms agreed with you.
ESOP plan drafted.
Board approval and special resolution with disclosures.
Required resolutions filed with the ROC.
Grant letters issued and register updated.
Allotment and filings when employees exercise.
Employees are taxed twice — at exercise and at sale — unless the startup deferral applies.
The difference between fair value and exercise price is taxed as a perquisite.
Gain over the fair value at exercise is taxed as capital gains.
Eligible startups allow tax at exercise to be deferred.
The company deducts TDS on the perquisite.
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One year between the grant of options and their vesting.
Generally no, but a startup can grant ESOPs to promoters and directors holding over 10% for up to ten years from incorporation.
A special resolution of shareholders, with the disclosures required by Rule 12.
At exercise as a perquisite and at sale as capital gains; eligible startups can defer the tax at exercise.
No. Options are personal to the employee and cannot be transferred.
ACS – Director, Expertvuw Management Pvt Ltd
This work is handled by Expertvuw’s team, with filings made on the MCA portal. Certifications and audits required by law are issued by independent practising professionals engaged for your case.