Glossary · Corporate Law
ESOP
Employee Stock Option Plan — a scheme allowing employees to purchase shares of the company at a pre-determined price within a specified period.
ESOPs are governed by Section 62(1)(b) of the Companies Act, 2013 and the SEBI (Share Based Employee Benefits) Regulations, 2014. Companies create an ESOP trust or pool a portion of share capital, grant options to employees, which vest over 1-4 years (Graded Vesting), and employees can exercise them at the strike price within an exercise window. The difference between market price and strike price is taxed as perquisite at exercise.
Examples
A tech startup grants 1,000 ESOP options to a senior engineer at ₹10 strike, vesting over 4 years. After 4 years, if the share is worth ₹500, exercising the option yields a perquisite of ₹4,90,000.