ESPP Meaning (Employee Stock Purchase Plan) – Free Educational Articles on Scholarszilla
Table of Contents
ESPP Meaning
Meaning
Under this scheme, the company offers Equity shares to its employees at a discounted price which they can buy at a future date. The company deducts a certain amount from the salary of the employee towards the payment for the shares.
Provisions
Following are the provisions related to ESPP:
- Different number of shares can be offered to different categories of employees.
- Shares issued through ESPP should be immediately listed.
- ESPP shares will have a minimum of one year lock-in period from date of allotment if ESPP is not a part of public issue.
- Company has to fulfill the provisions of SEBI (Shares Based Employee Benefits) Regulations, 2014.
- Company has to get the approval of the shareholders through a special Resolution to offer ESPP.
Scope of Employee Stock Purchase Plans
- An employee who is a promoter or a part of the promoter group shall not be eligible to participate in the Employee Stock Purchase Plan of the company.
- A director who either by himself or through his family or through any investment company, directly or indirectly holds more than 10% of the outstanding equity shares of the company shall not be eligible to participate in the Employee Stock Purchase Plan.
Shareholder Approval
- The ESPP shall be approved by the shareholders by a special resolution which shall specify the price of the shares and also the number of shares to be offered to each employee. The number of shares offered may be different for different categories of employees. The special resolution shall state that the company shall conform to the accounting policies mandated.
Pricing and Lock-in
- Companies shall have full freedom to price the shares under an ESPP at any level provided they conform to the provisions.
- Shares issued under an ESPP shall be locked in for a period of one year. However if the ESPP is part of a public issue and the shares are issued to employees at the same price as in the public issue, the shares shall not be subject to any lock-in.
Bonus Shares
Bonus shares are usually announced by the company with a record date, the date which is considered for the bonus shares. All the investors holding the shares on the record date are eligible for bonus shares. After the announcement of the bonus but before the record date, the shares are referred to as cum-bonus. After the record date, when the bonus has been given effect, the shares become ex-bonus.
