Key aspects of legal regime for employee stock options

The grant of employee stock options has become a common tool used by employers around the world to retain talent. Under employee stock options schemes (ESOS), employees are granted options that give them a right to acquire shares in a company on fulfilling certain criteria, such as completing a predefined period of employment and/or performance parameters. After fulfilling the criteria, the stock option vests with the employee, entitling them to exercise the option and be awarded company shares at a discount.

In addition to traditional ESOS, other schemes such as employee stock purchase schemes (ESPS), stock appreciation rights schemes (SARS), general employee benefits schemes (GEBS) and retirement benefit schemes (RBS) are increasingly being adopted to attract and retain talent.

The legal regime regulating these schemes in India has undergone a change in the past few years, with the Companies Act, 2013, and the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (SBEB Regulations), introducing substantial changes to the regulation of the schemes.