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  • Formalizes the ownership stake of employees who have successfully vested their options, turning them into actual shareholders.
  • Acts as a powerful retention tool by rewarding long-term commitment with the potential for significant wealth creation.
  • Aligns employee interests with the company’s long-term growth and valuation goals.
  • Conserves cash flow for the company by using equity as a form of non-cash compensation and incentive.
  • Enhances the company's culture by fostering a sense of ownership and entrepreneurial spirit among the workforce.
  • Provides a structured exit or liquidity mechanism for employees during future funding rounds or an IPO.
  • Signals to external investors that the internal team is highly motivated and has skin in the game.
  • Simplifies the process of professionalizing the management team by attracting toptier talent from larger corporations.

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7 Years

Of Experience

Cases Solved Icon

3622 +

Cases Solved

Awards Gained Icon

10 +

Awards Gained

Trusted Clients Icon

144 k +

Trusted Clients

Queries Solved Icon

36 k+

Queries Solved

Experience Icon

7 Years

Of Experience

Cases Solved Icon

3622 +

Cases Solved

Awards Gained Icon

10 +

Awards Gained

Trusted Clients Icon

144 k +

Trusted Clients

Queries Solved Icon

36 k+

Queries Solved

Experience Icon

7 Years

Of Experience

Cases Solved Icon

3622 +

Cases Solved

Awards Gained Icon

10 +

Awards Gained

Trusted Clients Icon

144 k +

Trusted Clients

Queries Solved Icon

36 k+

Queries Solved

Overview

ESOP Share Allotment is the final stage of the Employee Stock Option Plan cycle, governed by Section 62(1)(b) of the Companies Act, 2013, and the Companies (Share Capital and Debentures) Rules, 2014. The "trigger" for this compliance occurs when an employee exercises their vested options by paying the exercise price, and the Board of Directors subsequently passes a resolution to allot those shares.

In the 2026 MCA V3 regulatory ecosystem, the allotment process is highly transparent. Before any allotment can take place, the company must have an approved ESOP Scheme and must have filed the initial Special Resolution with the ROC. When the shares are actually allotted, the company must file e-Form PAS-3 (Return of Allotment).

For the FY 2025–26 cycle, the MCA requires specific disclosures regarding the "Exercise Price" and the "Fair Market Value" (FMV) at the time of grant versus the time of allotment.

The company’s Audit Trail (Edit Log) software must record the date of exercise, the receipt of the exercise price from the employee, and the board resolution date. This digital trail is vital for verifying that the shares were allotted strictly as per the terms of the scheme approved by the shareholders.

Document Required

Documents
  • 1 Permanent Account Number (PAN) Card of the Company.
  • 2 Aadhaar Card of the Authorized Director.
  • 3 PAN Card of the Authorized Director.
  • 4 PAN Card of the Authorized Director.
  • 5 Copy of the Special Resolution and the approved ESOP Scheme.
  • 6 List of Allottees (Employees) with their details and the number of shares allotted.
  • 7 Exercise Application Form submitted by the employees.
  • 8 Valuation Report (required at the time of Grant/Exercise for tax and compliance).
  • 9 Proof of Payment of the exercise price by the employees.

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Pre-Event Procedures

Step Name Short Description Authority
ESOP Scheme Approval Passing a Special Resolution to approve the ESOP Scheme and filing MGT-14. Shareholders
Option Exercise Employee submits an exercise application and pays the exercise price. Employee
Board Resolution Meeting to approve the allotment of shares to employees who exercised options. Board of Directors
Stamp Duty Payment Paying state-specific stamp duty on the total value of shares allotted. MCA V3 (State Govt)

Filing Requirements

Form Name Trigger/Description Countdown Deadline
MGT-14 Filing the Special Resolution for the ESOP scheme (if not done earlier). 30 Days from Scheme Approval
PAS-3 Return of Allotment detailing the shares issued to employees. 30 Days from Allotment
Share Certificates Issuing physical certificates or crediting the Demat accounts. 60 Days from Allotment

Penalty and Non-compliance Risk

Penalty and Non-compliance Risk

Daily Monetary Penalty for late filing of PAS-3
Invalidation of the ESOP Allotment
Tax Penalties under the Income Tax Act for incorrect "Perquisite" valuation
Rejection of ESOP-related filings due to lack of a prior approved scheme
Deactivation of the Company's ability to file other forms
Personal Liability of Directors for violating Section 62 norms
Suspension of the company’s ability to offer ESOPs in the future

FAQs

What is the difference between Vesting and Exercise?

Vesting is the period an employee must wait to earn the right to the shares; Exercise is the actual act of the employee buying those shares.

Is a Valuation Report mandatory for ESOPs?
Can the exercise price be less than the face value?
What is Form PAS-3?
How is the "Perquisite Tax" calculated?
Do we need to issue share certificates?
Can a director receive ESOPs?
What is the "Audit Trail" requirement for 2026?
Can the ESOP scheme be changed after it's launched?
What if an employee leaves before vesting?

Seamless Compliance for Your Business

Focus on growing your business while we handle the complexities of statutory compliance. From GST filing to Annual Audits, our automated systems ensure you never miss a deadline.

CA
  • GST Filing & Reconciliation
  • Income Tax Returns (ITR)
  • TDS/TCS Returns
  • Statutory & Tax Audit
  • ROC Company Filings

What Our Clients Say

Discover what our satisfied clients have to say about their experience working with us

Sandeep Reddy
Founder, Retail Trading Business
" ARK Advisors made our audit process smooth and stress-free. Clear checklist, timely follow-ups, and very practical guidance. "
Anusha Sharma
Partner, Professional Services Firm
" Their team quickly identified compliance gaps and suggested actionable fixes. Reporting was crisp and easy for management to understand. "
Rohit Kulkarni
CFO, Manufacturing Unit
" We got strong process recommendations and control improvements. The audit insights genuinely helped us reduce leakage and improve discipline. "
Meghana Rao
Director, Startup
" Professional, responsive, and very transparent. They explained everything in simple terms and kept the entire process on schedule. "
Imran Khan
Owner, Hospitality Business
" The team ensured our documentation was audit-ready and supported us throughout. Great experience and strong attention to detail. "

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