ESOP Compliance Software for Company Secretaries: Section 62(1)(b), Rule 12 – Employee Stock Option Plan

Section 62(1)(b) of the Companies Act, 2013 allows issue of shares to employees under an Employee Stock Option Plan (ESOP). Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 prescribes eligibility, vesting, exercise price, and mandatory disclosures. ESOP compliance software automates board resolutions, EGM notices, explanatory statements with Rule 12(2) disclosures, scheme documents, and checklists.

Companies Act 2013 Provisions – Section 62(1)(b) & Rule 12

Section 62(1)(b) permits issue of shares to employees under a scheme. Special resolution (or ordinary for private companies) is required. Rule 12 mandates: minimum 1-year vesting, eligibility criteria, appraisal process, exercise price, lapse conditions, valuation method, and other disclosures. The explanatory statement must include all Rule 12(2) disclosures. ESOP can be implemented via Direct route (company issues directly) or Trust route (ESOP Trust holds shares and grants options).

• Board resolution approving scheme and convening EGM
• EGM notice, special/ordinary resolution
• Explanatory statement with all Rule 12(2) disclosures
• Scheme document, MGT-14, SH-6 (option register)

Rule 12(2) Mandatory Disclosures – Checklist

The explanatory statement must include all of the following disclosures:

• Total number of options to be granted
• Identification of classes of employees eligible
• Appraisal process for determining eligibility
• Vesting period and exercise period
• Exercise price and basis of valuation
• Lock-in period
• Maximum options per employee
• Valuation method
• Lapse conditions
• Exercise period on termination
• Accounting standards compliance

Documents Required for ESOP Compliance

• Board meeting notice and resolution
• EGM notice and special/ordinary resolution
• Explanatory statement (Rule 12(2) compliant)
• ESOP scheme document
• Board attendance sheet
• Compliance checklist

Manual vs Automated ESOP Document Drafting

ESOP documents are among the most complex event-based documents. The explanatory statement alone requires 12+ disclosures. Manual drafting often leads to missing disclosures or inconsistent wording across documents.

• Manual: 4–8 hours per ESOP; high risk of missing Rule 12(2) disclosures
• Automated: 30–60 minutes; all Rule 12(2) disclosures included by default
• Manual: Grantee list typed or copy-pasted; errors in names/options
• Automated: Excel import for grantees; one-click parse
• Manual: Eligibility, appraisal, lapse drafted from scratch
• Automated: AI Generate buttons for each field

Software Automation Process for ESOP Compliance

1. Select company and scheme details – Scheme name, route (Direct/Trust), trust details if Trust route.
2. Enter scheme particulars – Total options, exercise price, face value, vesting period, exercise period, lock-in, valuation method.
3. Enter eligibility and disclosures – Use AI Generate for eligibility criteria, appraisal process, lapse conditions, valuation method.
4. Add grantees – Manually add or import from Excel (Name, Employee ID, Designation, Department, Number of Options, Exercise Price, Vesting Date, Vesting Period).
5. Enter meeting details – Board meeting date/time/venue, EGM date/time/venue, place.
6. Generate documents – Select board notice, board resolution, EGM notice, explanatory statement, scheme document, compliance checklist. Use AI for document generation or Word templates.
7. Download and save – Download .docx, review, save to document library.

How ESOP Compliance Software Automates Drafting

ESOP compliance software generates board notices, resolutions, EGM notices, explanatory statements (with AI-assisted eligibility, appraisal, lapse conditions, valuation method), scheme documents, and checklists. Supports both Direct and Trust routes. Excel import for grantees. Use with share capital change software for allotment. See the full event-based compliance guide.