What is the difference between ESOS and ESOP?

Aug 16, 2022

1. Eligibility of an employee to participate in Employee Stock Option Scheme (ESOS)

‘Employee Stock Option’ (ESOP) has been defined under Section 2(37) of the Companies Act, 2013, according to which “employees’ stock option” means the option given to the directors, officers or employees of a company or its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a predetermined price.

As per Section 62(1)(b) of the Companies Act, 2013:Following persons can participate:

  • a permanent employee of the company who has been working in India or outside India; or
  • a director of the company, whether a whole-time director or not but excluding an independent director; or
  • an employee as defined in the points mentioned above of a subsidiary, in India or outside India, or of a holding company of the company.

Following persons cannot participate:

  • An employee who is a promoter or a person belonging to the promoter group; or
  • A director who either himself or through his relative or through any body corporate, directly or indirectly, holds more than ten per cent of the outstanding equity shares of the company.

Hence, it is not correct to say that “Every employee of the company is eligible to participate in Employee Stock Option Scheme” (ESOS)

2. What is the difference between ESOP vs ESOS?

Points Employees Stock Option Scheme Employee Stock Purchase Scheme
Meaning “Employee stock option scheme or ESOS” means a scheme under which a company grants employee stock options directly or through a trust. “Employee stock purchase scheme or ESPS” means a scheme under which a company offers shares to employees, as part of a public issue or otherwise, or through a trust where the trust may undertake secondary acquisition for the purposes of the scheme.
Purchase of Shares Under ESOS, employees are given an option to purchase shares at a later date, i.e. after the vesting period. Under ESOPs, employees are given an option to purchase shares on the spot at a discounted price.
Lock-in The company may specify the lock-in period for the shares issued pursuant to the exercise of the option. Shares issued under an ESPS shall be locked in for a minimum period of one year from the date of allotment.
Public Issue ESOS has to be approved separately by the company in general meetings by passing a special resolution. It cannot be part of a public issue. Shares under ESPS can be issued as a part of a public issue.
Vesting Period The minimum vesting period for ESOS is one year. No vesting periods for ESPS as shares are offered on the spot.

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