1. Reserve Bank of India ('RBI') has vide its
notification No. FEMA/344/2015 dated 11th June, 2015 amended
Foreign Exchange Management (Transfer or Issue of Security by a
Person Resident Outside India) 2000 (Notification No. FEMA
20/2000-‐RB dated 3 May
2000) so as to define the terms "employee stock
option" and "Sweat Equity Shares" and further to
substitute the extant Regulation 8 governing "Issue of
Shares under Employee Stock Option Scheme to Person Resident
Outside India" with a new set of regulations.
2. Definition--‐Employee Stock Option: "employee stock
option" means the option given to the directors, officers
"employees‟ of a company or of its holding company or
joint venture or wholly owned overseas subsidiary/subsidiaries, if
any, which gives such directors, officers or employees, the benefit
or right to purchase, or to subscribe for, the shares of the
company at a future date at a pre-‐determined price;
3. Definition – Sweat Equity Shares:
"sweat equity shares" means such equity shares as issued
by a company to its directors or employees at a discount or for
consideration other than cash, for providing their
know-‐how or making available rights in the nature of
intellectual property rights or value additions, by whatever name
4. In place of existing Regulation 8, the following shall be
1. An Indian company may issue"employees stock option"and/or"sweat equity
shares"to its employees/directors or
employees/directors of its holding company or joint venture or
wholly owned overseas subsidiary/subsidiaries who are resident
outside India, provided that:
a) The scheme has been drawn either in terms of regulations
issued under the Securities Exchange Board of India Act, 1992 or
the Companies (Share Capital and Debentures)Rules,
2014 notified by the Central Government under the Companies Act
2013, as the case may be.
b) The"employee's stock
employees/directors under the applicable rules/regulations are in
compliance with the sectoral cap applicable to the said
c) Issue of"employee's stock
option"/sweat equity shares in a company
where foreign investment is under the approval route shall require
prior approval of the Foreign Investment Promotion Board (FIPB) of
Government of India.
d) Issue of"employee's stock
shares"under the applicable
rules/regulations to an employee/director who is a citizen of
Bangladesh/Pakistan shall require prior approval of the Foreign
Investment Promotion Board (FIPB) of Government of India.
2. The Reserve Bank may require the company issuing"employees‟stock
equity shares"to submit such reports and at
such frequency as it may consider necessary.
5. The erstwhile restrictions stating that "face value of
the shares to be allotted under the ESOP scheme to non resident
employees should not exceed 5 % of paid capital of issuing
company" has been dispensed with.
The new regulations have included issuance of shares by way of
'Sweat Equity Shares' also within its purview whereas the
old regulation were limited only to issue of shares under 'ESOP
Scheme'. It is worth noting that prior to coming into force of
Companies (Share Capital and Debenture) Rules, 2014 there were no
regulations governing issuance of 'ESOPs' by unlisted
public/private entities. Issue of ESOPs by listed company are
governed by Securities and Exchange Board of India (Share Based
Employee Benefits) Regulations, 2014
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