By August 19, 2015 December 20th, 2019 No Comments
The Reserve bank of India (RBI) has recently amended the Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) Regulations,
2000 and has come up with the Fourth Amendment Regulations, 2015 on June 11,
governing the issue of
shares under an Employee Stock Option Scheme (ESOP) and/or sweat equity shares
to a person resident outside India. Further, RBI has also issued directions in
this regard via circular dated 16 July 2015
(Amended Regulations).

The erstwhile provisions
before the Amended Regulations on the subject matter were as follows:

1.     An Indian company can issue
shares under Employees’ Stock Option (ESOP) Scheme, by whatever name called, to
its employees or employees of its joint venture or wholly owned overseas
subsidiary/subsidiaries who are resident outside India, directly or through a
trust, provided that the scheme has been drawn in terms of regulations issued
under the SEBI Act, 1992;
2.  Face value of the shares to
be allotted under the scheme to non-resident employees does not exceed 5 per
cent of the paid up capital of the issuing company; and
3.  The trust or Indian company
has to ensure compliance with the above conditions and comply with the
reporting requirement.

highlights of the Amended Regulations

1.    The definitions of sweat
equity and ESOP have been added;
2.   Issuance of sweat equity shares
has been allowed with the amended regulations;
3. Issuance
of shares/options to non-resident directors of its joint ventures or wholly
owned subsidiary/subsidiaries under the applicable rules/regulations are in
compliance with the sectoral cap applicable to the said company
4.  Issue of ESOPs or sweat
equity shares where foreign investment is under the approval route shall
require prior approval of FIPB;
5.  Issue of ESOPs or sweat
equity shares to a citizen of Bangladesh/ Pakistan shall require prior approval
of FIPB;
6.  Overall ceiling of 5 per
cent of the paid up capital of the Company in respect of issue of ESOPs to
non-resident employees has been done away with;
7.  The issuer Company has to
file a report in the newly prescribed format FORM ESOP within 30 days from the
date of such issue; and
8. Additional compliance
requirement of obtaining from a merchant banker/chartered accountant a
certificate for valuation of shares.

aforesaid Amended Regulations have been introduced to align the provisions of
the Companies Act, 2013, FEMA and the SEBI on the subject matter.

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