We’re probably making the startup founder an expert on ESOPs :). Startups who work with us understand our obsession of making them a success.
In this post, we’ll discuss about legal aspects of ESOP to employees of the Indian company based outside of India and ESOP to employees of a foreign company based in India.
A private and unlisted Indian company can issue ESOP to employees, who are resident outside India, by being compliant not only to Companies Act but also the FDI Policy (Foreign Direct Investment). The Indian company has to report to the Reserve Bank of India (RBI) with details of the issue of shares after the Exercise.
Also, there are no restrictions on the operationalization of the Plan, i.e. the shares can be issued directly by the company or through a Trust.
Care to be taken that the adjustments on bonus shares, rights shares, transfer of shares has compliances attached to it.
For a Listed company, the ESOP Plan has to be drawn in line with SEBI’s regulations and a limit of 5% of the total paid up capital.
ESOP to employees of a foreign company based in India
Automatic permission has been given for an Indian citizen (individual) to acquire shares under ‘cashless’ ESOP issued by a company outside of India. I.e. no remittance from India is permitted.
To purchase equity shares offered by a foreign company under ESOP, an employee/ director of Indian subsidiary, the same can be done upto 51% through automatic permission route. Again, there are no restrictions on the operationalization of the Plan, through Trust or directly from the company or through a special purpose vehicle. There is also a need to ensure that the ESOP offered by the foreign company is on a uniform basis globally.
Remittance made by the Indian company for purchase of shares under ESOP has to be intimated to RBI.
Further, if an employee transfers the shares acquired then he has to repatriate the sale proceeds within 90 days to India.
The foreign company is also allowed to repurchase the shares issued under ESOP, but comes with compliance requirements.
Disclaimer: This is not a legal opinion and should not be construed as one. Please speak with your attorney for any advice.