For execution of Employees stock option program , Trust registration is more preferred option in listed and unlisted public companies. Company done not required to dilute its shares in this method. Trust is registered for share acquisition from secondary market. Companies Act given legal guideline for lending of loan by company to Trust. The purpose of trust is execution of ESOP scheme , and not of business or charitable activity. In trust route,the administrative power of the Compensation Committee is required to be delegated to the Trust formed under these Regulations.
Use of ESOP Trust for Employees stock option program is more compliances. In this method company apply for ESOP Trust Registration. Purpose of trust registration is to ESOP. Trust acquires Shares from secondary market. Company grand loan to Trust for share acquisition. Once shares are with company then Employees decide to exercise ESOP option. The key benefit of this route is company done not required to dilute its current share holding. This form of allocation is mostly preferred in listed companies.
Company indirectly give loan fund to ESOP trust for shares acquisition. When the employees leave the company, the employees have the option of selling back the shares to the trust or in the secondary market and monetizing the wealth creation by way of subscribing to the shares.
Following persons cannot become Trustees in ESOP Trust.
A person shall not be a trustee who:
Employees stock option are issued under two method. First is direct route and second is Trust route. Trust route is more complex and require for legal compliances. The can may who wish to apply for Trust route , first step is ESOP Trust Registration , below is quick road map for ESOP Trust registration procedure, documents, timeline etc.
Once Trust registration is completed , Trust shall apply for registration of Income Tax PAN. The procedure for income tax pan for trust is online. Visit NDSL site , fill online form and submit documents , in 7 days time , Trust may get PAN card number.
Once Trust is registered on routine basis Trust and company need to maintain legal compliances, documentation etc. Below is ESOP Trust management services.