Before You Start: The Readiness Check
Before drafting resolutions: confirm your Articles of Association allow ESOP issuance; commission a valuation from a Registered Valuer; decide your total pool size as a percentage of fully diluted equity; engage legal counsel with Indian equity compensation experience.
Week 1–2: Board Approval
Call a board meeting. Pass a resolution approving the scheme in principle. Authorise the Company Secretary to draft the formal scheme document. Define: total pool (10% at seed, 12–15% at Series A), eligible employees, vesting schedule structure, exercise period.
Week 3–4: Scheme Document and Valuation
Draft the ESOP scheme document (master policy): eligibility criteria; grant process; vesting schedule with cliff and acceleration; exercise procedure; treatment on termination, death, disability; dispute resolution. Commission Registered Valuer to certify FMV as of the proposed grant date.
Week 5: EGM and Special Resolution
Issue EGM notice to all shareholders at least 21 days prior (shorter with written consent). Pass the special resolution with 75% majority. Explanatory statement must include all scheme parameters — missing details can invalidate the resolution.
Week 6: File MGT-14
File with ROC within 30 days of special resolution. ₹200/day penalty beyond 30 days. Include the full explanatory statement as an attachment.
Week 7–8: Issue Grant Letters
Issue individual grant letters. Each letter must specify: grant date; total options; exercise price (backed by valuation); vesting schedule; exercise window; good/bad leaver provisions; treatment at acquisition or IPO. Employees sign and return acceptance within a defined window — typically 30 days. Options not accepted lapse.
After Exercise: File PAS-3
Within 30 days of share allotment to exercising employees, file Form PAS-3. Update the register of members. Issue share certificates or statements of holding. This step is commonly skipped — and creates serious cap table headaches at Series B due diligence or IPO DRHP preparation.