28 December, 2011

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Guidelines relating to Employees Stock Option Plans

 1. Short title and commencement
1.1 These guidelines are being issued by the Central Government under section 17 of the Income-tax Act.

1.2 These guidelines are called the "Stock option guidelines, 2000."

1.3 Stock based incentive plans include Employee Stock Purchase Plan or Scheme, Employee Stock Option Plan or Scheme , or Stock appreciation rights, with the objective of issuing shares by a company to its employees, directly by the company or its holding company or by its promoters, or indirectly, through a trust constituted for such purpose.

"Employee Stock Purchase Plan or Scheme" is one whereby the employee allows the employer to withhold a certain portion of his monthly salary, the accumulated amount of the which is utilized to acquire shares at a discounted value.

"Employee Stock Option Plan" would be one where employees of the company are awarded options to acquire shares of the company at a pre-determined price after a certain period.

"Employee Stock Purchase Schemes" are those under which the company offers shares to employees, as part of a public issue or otherwise.

"Stock Appreciation Rights" or plans where the employees are awarded stock equivalents at a certain pre-agreed value, which is the prevailing market price on the date of the award. After the minimum stipulated period, the employees are allowed to encash such rights whereby the appreciation in the market price of the company's shares are paid to the employee in cash.

2. Any such plan or scheme in a written document must specify the following to the extent applicable particulars, namely :-
i. the number of shares that may be issued under a stock based incentive plan.
ii. the class of employees
iii. the pricing formula on the basis of which shares are allotted to the employees, not being in any case below the face value of shares.
iv. the number of options to be issued to each employee and the value to which such stock can be prescribed along with the prescribed time for 'grant' or 'exercise' of the option.
v. the manner of obtaining approval of shareholders.
vi. the lock in period of such shares from the date of option or vesting of offer or exercise under such scheme or plan to the point of granting of such shares, as the case may be.
vii. If shares are unlisted, the basis of valuation of shares would, shall be submitted to the Chief Commissioner of Income-tax holding jurisdiction of the company.
viii. the condition relating to restriction on non-transferability of such shares.
ix. The conditions contained in the written document shall not be changed after the effective date of the scheme or plan.

3. The shares in the above schemes or plans may be the shares of a subsidiary or holding company or a qualifying company in India or outside.

4. Such shares shall be listed in a recognized stock exchange in India or a recognized stock exchange of a country outside India.

5. Every company issuing shares under stock based incentive plans to its employees shall file complete particulars in the specified form, with the Chief Commissioner of Income-tax having jurisdiction of the company within a period of six months of the date of issue of these guidelines or after six months of the previous year of the effective date of the scheme or plan, whichever is later.
Meaning :- For the purposes of this guidelines - 
"employee" means

a. A permanent employee of the company, being a person working in India or out of India.
b. A director or a company, whether whole-time or not.
c. An employee is defined as in sub-clause (a) or (b) or a subsidiary, in India or out of India, or of a holding company of the company.
"grant" means the issue of options under a scheme.
"Option" means a right but not an obligation granted to an employee to apply for shares at a pre-determined price.
"Effective date" - The date noted in a scheme is available to all stock options granted on or after specified date under a plan or scheme.
"exercise" means an application by the employee to the company for issue of shares against option vested in him in pursuance of a plan or scheme, as the case may be.
"Exercise period" means the time period vesting within which the employee should exercise his right to apply for shares against the option vested in him in pursuance of the scheme.
"Promoter" means persons in overall control of the company and includes the 'promoter group', that is, immediate relatives of the promoter, i.e., spouse, parent, brother, sister, or where a promoter of a company is a body corporate, the promoters of the body corporate shall also be deemed to be promoters of the company.
"qualifying company" - a qualifying company would be any company that grants shares under an option plan or its scheme and meets the following requirement:
a. it is a company within the meaning of section 2(17) of the Income-tax Act and includes its subsidiary or holding company, as the case may be and
b. carries its business activities in India.
"Shares" mean equity shares, or securities convertible into equity shares and shall include American Depository Receipts (ADRs), Global Depository Receipts (GDRs) or other receipts representing underlying equity shares or shares convertible into equity shares.

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