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ESOP Trust Formation – Expertvuw
Employee Equity

Setting Up an ESOP Trust

Last updated: 2 October 2026

An employee welfare trust can hold shares for your ESOP — keeping the cap table clean and giving employees a way to exit. Our team drafts the trust deed, sets up the trust and aligns it with your ESOP scheme and the Companies Act.

Overview

How an ESOP trust works

In a trust route, the company sets up an employee welfare trust. The trust acquires shares — by fresh allotment or by purchase — and transfers them to employees when they exercise their options. It can also buy shares back from employees who leave, giving them liquidity.

  • The trust is created by a trust deed and registered, with trustees appointed by the company.
  • For unlisted companies, the company can give financial assistance to the trust to buy its shares for employees, within the limits and approvals under section 67 of the Companies Act.
  • The trust holds shares as one shareholder, so the company’s register shows the trust rather than many individual employees until exercise.
  • Listed companies using a trust follow SEBI’s share-based employee benefits regulations, which set limits on the trust’s holdings and voting.

A trust adds set-up cost and yearly administration, so it suits companies with a larger or longer-term ESOP programme.

Based on the Companies Act, 2013, Rule 12 of the Share Capital and Debentures Rules, 2014 and the Indian Trusts Act, 1882. Last updated: 27 September 2026.

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What This Service Covers

What our ESOP trust service covers

1

Structure review — direct ESOP or trust route

2

Trust deed drafting and registration

3

Trustee appointment and trust PAN and bank account

4

Financial assistance approvals and share acquisition by the trust

5

Operating procedures for exercise, transfer and leaver buy-back

Key facts at a glance

Trust deed

Document that creates the employee welfare trust

Section 67

Allows financial assistance to the trust within limits

One holder

The trust holds pool shares as a single shareholder

Liquidity

Trust can buy back shares from leaving employees

Own PAN

The trust needs its own PAN and bank account

SEBI rules

Apply to trusts of listed companies

Common Issues

Where ESOP trusts commonly go wrong

Trusts need clear rules to work smoothly over years.

Deed not aligned

Trust deed and ESOP plan contradict each other on exercise or exit.

Funding not approved

Company loans to the trust made without the required approvals.

Trust not administered

Trust accounts, tax returns and minutes neglected.

Related Services

Related services

Trusts work alongside other employee equity tools.

ESOP Scheme

Direct ESOP route.

Phantom Stock

Cash-settled alternative.

Share Transfer

Transfers to and from the trust.

Trust Registration

Registering a trust.

Documents Required

Documents we need from you

Company Documents

Trust Documents

Our Process

How we set up your ESOP trust

1

Structure

We confirm the trust route suits your ESOP plans.

2

Deed

Trust deed drafted and aligned with the ESOP plan.

3

Registration

Trust registered; PAN and bank account opened.

4

Approvals

Board and shareholder approvals for funding.

5

Shares

Trust acquires shares for the pool.

6

Operations

Procedures for exercise, transfer and buy-back.

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Running the Trust

Running the trust each year

A trust has its own records and filings.

Accounts

Trust accounts kept and audited where required.

Tax

Trust income tax return filed.

Transfers

Shares transferred to employees on exercise, with records.

Reporting

Trust holdings reflected in company registers and filings.

Get in Touch

Share your query and our team will reply during business hours.






    FAQs

    Frequently Asked Questions

    Why use an ESOP trust?

    A trust holds the ESOP pool as one shareholder, simplifies the cap table and can buy shares back from employees who leave.

    Yes, within the limits and approvals for financial assistance under section 67 of the Companies Act.

    No. Most unlisted companies grant ESOPs directly; a trust is an option for larger or longer-term programmes.

    Trustees appointed under the trust deed, who must act in the employees’ interest.

    Yes. SEBI’s share-based employee benefits regulations apply.

    About Expertvuw

    Who handles your case

    CS Chetna Shoor, Company Secretary and Director, Expertvuw

    CS Chetna Shoor

    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.

    Expertvuw Management Pvt Ltd