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Esop procedures

Open uri20170510 32134 9p7be3?1494421783 rashmi asked over 2 years ago

How employee stock option scheme takes place Wt are its uses

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4 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered about 2 years ago

Most ESOP companies had the desire to set up an employee benefit or incentive as one reason for starting their plan, but for many companies that's the only reason. Some companies hope that by making employees owners they will increase their dedication to the firm, improve work effort, reduce turnover, and generally bring a more harmonious atmosphere to the company. Research has shown that giving workers a significant stake in their companies can improve employees' attitudes towards their companies, and that these improved attitudes towards their companies can translate into bottom line improvements. Other companies want to set up some kind of benefit plan, and find that an ESOP is the best choice.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 lochan answered over 2 years ago

**ESOP** Hold a Board Meeting to consider ESOP Formation of compensation committee Hold General Meeting to pass Ordinary resolution to approve the scheme. On receipt of letter of acceptance of option alongwith upfront payment,from the employee, issue the option certificates After expiry of vesting period, the options shall vest in the employee. At that time, the company shall issue a letter of vesting alongwith the letter of exercise of options Receipt of letter of exercise from employee during the exercise period Hold a Board Meeting at the suitable interval during the exercise period for allotment of shares on options exercised by the employees Dispatch of letter of allotment alongwith share certificates USES OF ESOP Readily Available Market for Controlling Shareholders Readily Available Market for Minority Shareholders and Outside Investors Tax-Advantaged Alternative to Sale or Merger Effective Tool for Increasing Cash Flow and Net Worth Superior Employee Incentive Device New Way to Finance Debt Reduction with Tax-Deductible Dollars THANKS

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Open uri20170510 32134 tcchcu?1494421832 Jitendra Suthar answered over 2 years ago

Hiiii friend.... ESOP - Employee Stock Option ---------------------------- i. **Employee under an ESOP Scheme –** Rule 12(1) read with Section 2(37), 197(7) of the Companies Act, 2013 defines the term to mean any permanent employee or Director whether a whole-time or not and whether working in India or not. The employees and Directors of the Holding, Subsidiary and Associate Company are also covered. The specific exclusions are: a) An Independent Director; b) An employee who is a Promoter or belongs to the Promoter Group; and c) A Director who directly or indirectly holds more than 10% of outstanding equity shares of the Company. ii. **Procedural requirements** – Rules 12(1), 12(2) and 12(4) read with section 62(1)(b) of the Companies Act, 2013 require: a) Approval of the ESOP Scheme by the members of the Company by way of a special resolution; b) There shall be separate resolutions in case of grant of ESOPs to employees of the Subsidiary or Holding Company or in case of grant of ESOPs to identified employees equal to or exceeding 1% of the issued capital; and c) The explanatory statement shall disclose prescribed details namely total number of ESOPs to be granted, appraisal process, requirements of vesting, exercise price or pricing formula, exercise period, lock-in period, method of accounting, etc. iii. **Other requirements** – Rest of the Sub-rules of Rule 12 besides giving the flexibility to the Company to determine the exercise price and lock-in of shares, require: a) Variation of terms of the ESOPs to be carried out by way of members’ approval by way of a special resolution provided it is not prejudicial to the interests of the employees; b) Minimum vesting period of 1 year; c) Non-transferability of the ESOPs; d) Unvested ESOPs to vest in case of death or permanent incapacity of an employee; e) Disclosure of prescribed details in the Directors’ Report; and f) Maintenance of an ESOP Register. Regards,

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Picsjoin 2017224123730582 Archana answered over 2 years ago

Hie Rashmi, **ESOP can be explained as :-** A stock option granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded option because it is not generally traded on an exchange, and there is no put component. Furthermore, employees typically must wait a specified vesting period before being allowed to exercise the option. **Uses of ESOP are :-** The two most common uses of ESOPs are to buy the stock of a retiring owner in a closely held company, and as an extra employee benefit or incentive plan. 1. Buying The Stock Of A Retiring Owner Many closely held companies have no plans, or incomplete plans, for business continuity after the departure of retirement of the founder or major shareholder. If the company repurchases a retiring or departing owner's shares, the departing owner sells his or her stock to another company, the proceeds will be taxed as ordinary income, or as capital gains if certain requirements are met, and, finding a buyer is not always easy even for a profitable closely-held company. Even if possible, it is not always desirable; furthermore in a family business, a retiring owner may face an unpleasant choice between selling to a competitor or conglomerate, or liquidatiom. 2.Employee Benefit Or Incentive Most ESOP companies had the desire to set up an employee benefit or incentive as one reason for starting their plan, but for many companies that's the only reason. Some companies hope that by making employees owners they will increase their dedication to the firm, improve work effort, reduce turnover, and generally bring a more harmonious atmosphere to the company. Research has shown that giving workers a significant stake in their companies can improve employees' attitudes towards their companies, and that these improved attitudes towards their companies can translate into bottom line improvements. Other companies want to set up some kind of benefit plan, and find that an ESOP is the best choice.

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