Issue of Shares — Secretarial Practice STD 12 Commerce / Arts — Question

• Employees Stock Option Scheme (ESOS)
• Employee Stock Purchase Scheme (ESPS)
• Stock Appreciation Rights Scheme (EARS)
• Sweat Equity Shares

(i) Employees Stock Option Scheme (ESOS):
An employee stock option plan is an employee benefits scheme under which the company encourages its employees to acquire ownership in the form of shares. Under this scheme, permanent employees, Directors or Officers of the Company or its holding company or subsidiary company- are offered the benefit or right to purchase the equity shares of the company at a future date at a predetermined price. Generally, these shares are issued at discount. The shares are offered at a price lesser than their market price.

Following are the provisions related to ESOS:

• A company may offer the shares directly to the employees or through an Employee Welfare Trust.
• The shares are offered at a price lesser than their market price.
• There is a minimum vesting period of one year.
• The company specifies the lock-in period. It is a minimum of one year between the grant of option and vesting.
• Shares issued under this scheme enjoy dividends or voting rights only after buying by employees.
• The company has to get the approval of shareholders through a special resolution to issue ESOS.
• An employee can neither transfer his option to any other person nor pledge/mortgage the shares issued under ESOS.
• The company has to set up a compensation committee to administer ESOS
• The company has to fulfill the provision of SEBI (Share Based Employee Benefits) Regulations, 2014.

(ii) Employee Stock Purchase Scheme:
An employee stock purchase scheme is a company-run programme in which participating employees can purchase companies equity shares at a discounted price which they can buy at a future date. The company deducts a certain amount from the salary of the employee towards the payment for the shares.

Provisions:

• A different number of shares can be offered to different categories of employees.
• Shares issued through ESPS – should be listed on a recognized stock exchange.
• If ESPS is not a part of a public issue then it will have a one-year lock-in period from the date of allotment.
• The company has to fulfill the provisions of SEBI.
• The company has to get the approval of the shareholders by passing a special resolution to offer ESPS.

(iii) Stock Appreciation Rights Scheme:

• It is a method for companies to offer their employees a bonus compensation if the company performs well financially.
• The company allows a specified number of ‘Stock Appreciation Right’ Units that are linked to the value of the Company’s shares on the date of allotment. On the future date, the employee is paid the appreciation value in cash or through Equity Shares.
• There is no lock-in period for SARS. To issue SARS company has to get the approval of shareholders by a special resolution.

(iv) Sweat Equity Shares:
These are shares issued by a company to its directors or employees at a discount or for consideration other than cash. It is one of the modes of making share-based payments to employees. It is issued in recognition of their valuable contribution in the prosperity of the company.

Sweat Equity Shares rank “Pari Passu” (equal footing) with other equity shares. These shares have a lock-in period of three years. The company has to get the approval of shareholders by passing a special resolution to issue Sweat Equity Shares.