Q.Explain Employee Stock Option Scheme.

An Employee Stock Option Scheme (ESOS) gives a company's employees the option to buy the company's shares at a predetermined price on a future date, so as to reward, motivate and retain them by making them part-owners of the company.

Meaning: An Employee Stock Option Scheme is a plan under which a company gives its permanent employees, directors and officers the option — that is, a right without any obligation — to apply for and be allotted the company's shares at a fixed price at some future point. The employee is free to exercise the option or let it lapse.

Key features:

• Option, not obligation: the employee may choose to buy the shares or not.
• Pre-determined price: the price (exercise price) is fixed in advance, often below the expected market price.
• Vesting period: the employee must usually complete a minimum period of service before the option can be exercised.
• Eligibility: offered to permanent employees, directors and officers of the company (and, subject to conditions, of holding or subsidiary companies), but generally not to promoters or independent directors.
• Non-transferable: the option granted cannot be transferred, pledged or sold by the employee.
• Legal basis: governed by Section 62(1)(b) of the Companies Act, 2013 and the related Rules (for listed companies, also SEBI regulations). …