1. Legal Provision for ESOPs

• Governed by Section 62(1)(b) of the Companies Act, 2013
  
• Requires approval through a special resolution passed by shareholders
  
• Must follow the Companies (Share Capital and Debentures) Rules, 2014
  

2. Eligible Recipients of ESOPs

• Can be issued to permanent employees, directors (not independent directors), or officers
  
• Cannot be issued to promoters or individuals holding more than 10% equity, unless the company is a startup registered with DPIIT
  
• Startups are permitted to issue ESOPs to such individuals for 10 years from incorporation
  

3. Shareholder and Board Approval

• Board of Directors must approve the ESOP scheme
  
• Shareholders must pass a special resolution in a general meeting
  
• The resolution must specify total number of options, vesting period, exercise price, and class of employees
  

4. Compliance and Documentation

• Maintain an ESOP Register with details of each option granted and exercised
  
• File Form MGT-14 with ROC within 30 days of passing the special resolution
  
• Issue option letters, maintain board approvals, and follow proper accounting treatment
  

5. Vesting and Allotment Process

• ESOPs typically have a vesting period (minimum 1 year) before they can be exercised
  
• After vesting, employees can exercise their options by paying the exercise price
  
• On exercise, the company allots fresh equity shares, and updates the Register of Members