An Employee Stock Ownership Plan is an employee benefit scheme implemented by companies for their employees, where they encourage the employees to agree to buy shares of the company at a predetermined price. However, these shares are only meant to be sold at the end of predetermined period or time. . The employees have a right but an obligation to buy shares. Any company can issue ESOPs. In case of listed companies the issuance of ESOPs must be in accordance with the Securities and Exchange Board of India Employee Stock Option Scheme Guidelines. The companies that are not listed must issue it in accordance with the provisions of the Companies Act, 2013 and Companies (Share Capital and Debentures) Rules, 2014. In short, ESOP is a scheme where a company increases its subscribed share capital by issuing shares to its employees at a discounted rate. Any employee can be offered ESOP as per the criteria.
Excluding directors and promoters of a company who have more than 10% equity in the company, every employee is eligible for ESOP. An employee however must meet any one of the following criteria:
ESPP is an Employee stock purchase programme that exists in publicly traded companies where the employees can buy shares at a discounted price. Here, a percentage from the salary of the employee is deducted and contributed to the purchase of stock of the company every month. The amount of discount is subjective to the type of plan offered and can be as much as 15% less than the market price.
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