How to Plan Stock Options for your Foreigner Employees: Startup Legal Talk
ESOPs Series for Startups by Legal Experts at NovoJurisWe’re probably making the startup founder an expert on ESOPs :). Startups who work with us understand our obsession of making them a success.
In this post, we’ll discuss about legal aspects of ESOP to employees of the Indian company based outside of India and ESOP to employees of a foreign company based in India.
A private and unlisted Indian company can issue ESOP to employees, who are resident outsideIndia, by being compliant not only to Companies Act but also the FDI Policy (Foreign Direct Investment). The Indian company has to report to the Reserve Bank of India (RBI) with details of the issue of shares after the Exercise.
Also, there are no restrictions on the operationalization of the Plan, i.e. the shares can be issued directly by the company (please read the process here) or through a Trust (please read what it means here)
Care to be taken that the adjustments on bonus shares, rights shares, transfer of shares has compliances attached to it.
For a Listed company, the ESOp Plan has to be drawn in line with SEBI’s regulations and a limit of 5% of the total paid up capital.
ESOP to employees of a foreign company based in India
Automatic permission has been given for an Indian citizen (individual) to acquire shares under ‘cashless’ ESOP issued by a company outside of India. I.e. no remittance from India is permitted.
To purchase equity shares offered by a foreign company under ESOP, an employee/ director of Indian subsidiary, the same can be done upto 51% through automatic permission route. Again, there are no restrictions on the operationalization of the Plan, through Trust or directly from the company or through a special purpose vehicle. There is also a need to ensure that the ESOP offered by the foreign company is on an uniform basis globally.
Remittance made by the Indian company for purchase of shares under ESOP has to be intimated to RBI.
Further, if an employee transfers the shares acquired then he has to repatriate the sale proceeds within 90 days to India.
The foreign company is also allowed to repurchase the shares issued under ESOP, but comes with compliance requirements.
Let us know what you think of this Series and if there are other topics which you would like us to write about.
Disclaimer: This article is for informational purposes only and is not a legal advice or opinion.
Sharda Balaji founded NovoJuris with the realization that technology innovations are fast outpacing the legal framework. NovoJuris counts over 200 small and medium business and over 10 investment houses as their customers over the last 3 years. NovoJuris values a culture of providing professional legal help and obsesses about the success of their customers. The management team at NovoJuris brings over 30 years of experience in technology and law into practice. Do check out their website for further details.