ESOP planning, dilution and scheme support
Funding and transactions
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On demand
An employee option plan needs to answer practical questions before grants are promised: who can participate, how many options are available, when they vest, what exercise will cost and what happens when someone leaves. The effect on ownership and the company’s future funding must also be clear.
TheTaxCo handles ESOP design and implementation through the relevant experts: pool and dilution modelling, scheme and grant documents, approvals, valuation, accounting, reporting and ongoing administration. We work with management on the commercial decisions and arrange the required professional review and sign-off.
Explain what the employee is receiving
An option gives the holder a right to acquire shares under the scheme’s conditions. A grant, vesting, exercise and allotment are separate stages. The scheme and communication should explain them in terms employees can follow.
Stage | Question the scheme must answer |
|---|---|
Grant | How many options are offered, to whom, and on what terms? |
Vesting | What service or performance conditions must be met, and when? |
Exercise | When can vested options be exercised, what must be paid, and what happens if the window expires? |
Shares and exit | What rights attach to the resulting shares, and how might a transfer or liquidity event work? |
Leaving employment | How are vested and unvested options treated in the relevant circumstances? |
Employees should not be led to assume that an option can be sold immediately or that a future exit value is guaranteed. The terms need to explain the actual rights, restrictions and cash requirements.
Establish eligibility and the approval route
The company’s status and the proposed recipients determine the applicable framework. Section 62 of the Companies Act and the relevant rules address employee stock options for the applicable company category; listed companies have a separate SEBI framework. Companies Act, section 62
For an unlisted-company scheme under Rule 12, participation is tied to the defined employee and director categories and the applicable exclusions. A consultancy arrangement alone does not make someone an eligible employee. Do not promise a consultant an employee option merely because they contribute substantially to the business. Their status and a lawful alternative structure need review. Companies (Share Capital and Debentures) Rules, Rule 12; see also SEBI-hosted official copy of Rule 12.
Promoter, director, group-company and non-resident participation require particular attention. Any startup relaxation must be tested against its actual conditions rather than assumed from the company’s age or marketing description.
Model the pool and dilution
The ownership model starts with current shares, existing grants and other convertible instruments. We show the proposed pool on the agreed basis and distinguish options reserved for future grant from options already granted or exercised.
The timing of a pool increase matters in a funding round. If investors require the pool to be included in the pre-investment capitalisation, the resulting dilution can differ from a pool created after the round. The term sheet, cap table and scheme must use the same assumptions.
We can prepare scenarios for different pool sizes, grant allocations and funding terms. Those scenarios inform the decision; they should not create a promise that every employee will receive a stated ownership percentage regardless of later dilution.
Connect the scheme with records, accounting and payroll
A scheme needs a controlled record of grants, vesting, exercises, lapses and the remaining pool. Changes must be supported by the applicable decision and documents. Employee communication should agree with the approved scheme and individual grant terms.
Our accounting and tax experts prepare the valuation and expense inputs, connect the scheme records with payroll, and address the tax treatment at the relevant stages. The treatment depends on the actual arrangement and applicable period. Tax costs and potential exercise funding should be explained before an employee has to make a decision; no blanket tax-free outcome is assumed.
If employees or group entities are outside India, cross-border rules and local employment or tax advice may be needed. See FEMA and RBI reporting support for the Indian reporting assessment.
What you receive
You receive the ownership reconciliation, pool and dilution scenarios, scheme and grant documents, supporting valuation and accounting records, grants register and action calendar. Our team carries the approved plan through implementation and maintains the agreed administration cycle.
We first request the cap table, existing shareholder and option arrangements, company status, proposed recipient categories and the purpose of the plan. Timing depends on the decisions still open, required professional work, approvals and any live funding round.
Can you guarantee improved retention?
No. A plan’s effect depends on its terms, employee expectations and the wider employment relationship. The service helps design and explain the proposed arrangement; it does not promise a reduction in attrition.
Can we use a foreign template unchanged?
The template must be assessed against the Indian company and the applicable framework. Grant terminology alone does not establish that its eligibility, vesting, exercise and departure terms are suitable.
Can we start before deciding the pool size?
Yes. Pool and dilution modelling can help management decide. The decision should consider proposed hiring, existing commitments and funding terms.
Email TheTaxCo, message us on WhatsApp or book a call. Share the company status, current cap table, proposed recipient categories and whether a funding round or grant date is approaching.