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ESOPSare crucial assets tools to reward employees and retain them by providing sense of ownership. They are probably the most valuable contribution that Startups make to the lives of employees who suffer low salaries and long hours while working in new Companies.As an entrepreneur you should know, What are Employee Stock Option Plans (ESOPS)? Importance of Employee Stock Option Plans? Whom to issue ESOPS? How to issue ESOPS? What are the Cost & Criteria to issue Employee Stock Option Plans? Benefits of ESOPSand Dos and Dont’s?
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EMPLOYEE STOCK OPTIONS PLANS
RESTRICTED STOCK UNITSRESTRICTED STOCK UNITS
STOCK APPRECIATION RIGHTS
GRANT – HOW MUCH DO I DILUTE?
COVERAGE - WHO & HOW MANY?
BENEFIT - WHAT IS THE MINIMUM BENEFIT?
VALUE - WHAT IS YOUR DREAM?
(THE EXPECTED UPSIDE)
GRANT - OBJECTIVE
PAST PERFORMANCE REWARD
IN ANTICIPATION OF FUTURE PERFORMANCEIN ANTICIPATION OF FUTURE PERFORMANCE
JOINING BONUS
GRANT - PRICE
FAIR MARKET VALUE
FACE VALUEFACE VALUE
DISCOUNT TO FAIR MARKET VALUE
(HIGHER ACCOUNTING CHARGE WITH DEEPER DISCOUNT)
VESTING – SERVICE PERIOD
UNIFORM ACROSS THE BOARD
DIFFERENT FOR DIFFERENT PEOPLE
FRONT ENDED
BACK ENDED
UNIFORM OVER THE SERVICE PERIOD
VESTING – HOW DO YOU EARN THE BENEFIT?
PASSAGE OF TIME
PERFORMANCE OF THE INDIVIDUALPERFORMANCE OF THE INDIVIDUAL
PERFORMANCE OF THE COMPANY
TOTAL INVESTOR RETURNS
EXERCISE – NEW PARTNERS!!
LIQUIDITY OPTIONS:
- INITIAL PUBLIC OFFER?- INITIAL PUBLIC OFFER?
- TRADE SALE?
- BUY BACK?
NEW PARTNERS – PROTECT THEM!!
ACCELERATE VESTING ON PROMOTER EXIT?
TERMINATE WITHIN 1 YEAR FROM CORPORATE TERMINATE WITHIN 1 YEAR FROM CORPORATE
ACTION? - ACCELERATE VESTING!!
DOCUMENT IT & COMMUNICATE!
SHAREHOLDER APPROVALS
BOARD APPROVALS
PLAN DOCUMENT
EMPLOYEE AGREEMENT
TALK ABOUT THE PROGRESS & WEALTH!
ACCOUNT FOR IT!
THIS IS A FORM OF COMPENSATION,
SO ACCOUNT FOR IT!
- OPTION VALUATION (BLACK-SCHOLES OPTION PRICING)
- DISCLOSURE IN NOTES TO ACCOUNTS
REGULATORY NOTES
PRIOR APPROVAL OF SHAREHOLDERS
ONLY PERMANENT EMPLOYEES
NO PROMOTERS
NO INDEPENDENT DIRECTORS
MINIMUM 1 YEAR FROM GRANT TO VESTING
MINIMUM PRICE – FACE VALUE
TRUST ROUTE
NOT UNLESS YOU WANT TO FACILITATE BUYBACKNOT UNLESS YOU WANT TO FACILITATE BUYBACK
REGULATIONS
COMPANIES ACT, 2013
INCOME TAX ACT, 1961
GUIDANCE NOTE ON STOCK BASED COMPENSATIONS, ICAI
RBI GUIDELINES
SEBI (ESOS & ESPS) GUIDELINES, 1999
INCOME TAX – TAX ON PERQUISITE VALUE
GRANT: NO TAX
VESTING: NO TAXVESTING: NO TAX
EXERCISE:
FMV AS ON EXERCISE – EP = PERQUISITE (SALARY)
INCOME TAX- CAPITAL GAINS
SALE:
SALE PRICE – FMV AS ON EXERCISE = LONG/ SHORT SALE PRICE – FMV AS ON EXERCISE = LONG/ SHORT
TERM CAPITAL GAIN
“YOU MAY NOT CHANGE THE WORLD, BUT YOU
CAN DEFINITELY CHANGE THE WAY A FEW PEOPLE CAN DEFINITELY CHANGE THE WAY A FEW PEOPLE
EXPERIENCE IT.”
