ESOPs are the cheapest growth capital a company will ever raise — paid for in equity, repaid in retention. But a scheme designed casually becomes a tax and accounting problem that surfaces at the worst moments: the fundraise, the audit, the IPO. We design, value, account for, and administer ESOPs so they do what they were meant to — keep your best people.
An Employee Stock Option Plan lets employees buy shares at a predetermined price after vesting conditions are met — usually continued service over three to four years, sometimes with performance conditions. Done right, it aligns the team with the company's value creation: everyone rows toward the same valuation.
The complexity sits in three places. Accounting: Ind AS 102 requires the fair value of options to be expensed over the vesting period — it hits the P&L, and auditors examine the valuation model closely. Tax: the discount at exercise is taxed as perquisite (salary income) in the employee's hands, and the eventual sale as capital gains — employees who don't understand this feel betrayed at exercise. And design: vesting schedules, cliff periods, exercise windows, and leaver provisions determine whether the scheme retains people or just creates paperwork.
Startups competing for talent against funded competitors — when you can't match cash compensation, equity is how you hire the ten people who build the company. Growth-stage companies where the early team needs a reason to stay through the hard middle years. Pre-IPO companies, where ESOPs granted before listing become genuinely life-changing and the scheme has to be IPO-ready (the DRHP discloses everything about it).
Also: companies where key employees are asking. When your best people start raising ESOPs unprompted, the market is telling you something — structured equity beats ad-hoc promises every time. A promise of "we'll sort out equity later" has zero retention value and infinite misunderstanding potential.
We design the scheme around your actual objectives — retention, hiring, or founder liquidity planning. Vesting schedules with or without cliffs, exercise periods that are humane (the one-year post-exit exercise window is where most schemes fail their people), leaver provisions that distinguish good leavers from bad, and pool sizing that leaves room for future hires without constant shareholder re-approvals.
Fair value per option using Black-Scholes or binomial models, with the underlying equity valued independently. This number drives the accounting charge, the tax perquisite, and the employee's perception of value — it has to be right, documented, and explainable to a non-finance employee.
Ind AS 102 charge computation, vesting-period expense schedules, and the disclosures for financial statements — plus the DRHP-ready ESOP disclosures for IPO-bound companies (grants, vesting, exercises, and the fully-diluted picture).
Perquisite tax at exercise, capital gains at sale, employer TDS obligations, and cross-border considerations for employees outside India. We also advise employees — plainly, in writing — on what their options will cost them in tax, because surprised employees become ex-employees.
ESOP trust setup where appropriate, grant letters, exercise administration, cap-table integration, and the board/shareholder approvals the Companies Act requires. The scheme has to work on a Tuesday afternoon when someone resigns — we build the operating manual for that.
Scheme design through approval: four to eight weeks. Valuation: two to three weeks per round. Ongoing administration is typically an annual retainer scaled to headcount and grant activity.
Fees are fixed per phase. The expensive version of ESOPs is the one designed badly — repricing, tax surprises, and audit qualifications cost multiples of getting it right the first time.
Standard schemes give departing employees a short window to exercise — often 30 to 90 days — forcing them to pay exercise price plus perquisite tax on illiquid shares, or forfeit. This single clause has destroyed more goodwill than any other. Design exercise windows people can actually use.
The Ind AS 102 charge surprises founders who thought ESOPs were "free." For a company granting heavily, the P&L impact is material — and IPO-bound companies discover that the charge restates historical profitability. Model it before granting, not after.
Verbal promises of equity, undocumented. When the company succeeds, every handshake is remembered differently. Grants happen through the scheme, in writing, or they don't happen.
What the scheme must achieve — retention, hiring, or pre-IPO positioning — and the constraints (pool size, tax, accounting).
Scheme rules drafted, pool sized, options valued. Board and shareholder approvals.
Grant letters, employee communication in plain language, administration setup.
Vesting tracking, exercises, accounting charges, disclosures — run quietly in the background, year after year.
Typically 10–15% for early startups, smaller for growth-stage. The right size covers 18–24 months of hiring without constant re-approval. We model it against your hiring plan.
At exercise, the discount to fair value is taxed as perquisite (salary). At sale, the gains are capital gains. Employees need to understand both — we provide plain-language explainers.
Options give the right to buy at a fixed price; RSUs are actual shares delivered on vesting. RSUs are simpler for employees but have different tax and accounting treatment. We advise on fit.
No — grants need an approved scheme with board and shareholder backing. Handshake promises create the disputes; the scheme prevents them.
Yes — the DRHP discloses the full ESOP picture, pre-IPO grants get extra scrutiny, and the scheme must be IPO-compliant. Start this work 12+ months before filing.
Not always. Direct grants work for many companies; trusts help with administration at scale and secondary transactions. We recommend based on your situation.
Vested options usually must be exercised within a defined window (often 90 days); unvested lapses. The scheme document governs — and most disputes come from schemes nobody read.
Yes, with board and shareholder approval — but it has accounting and tax consequences. Repricing after a down round is common; doing it sloppily creates more problems than the underwater options did.
For accounting (Ind AS 102) and tax, yes — fair value at grant with periodic updates. Annual valuation discipline prevents year-end scrambles.
Founders typically hold equity directly; ESOPs are for employees and sometimes advisors. Promoter ESOPs in listed companies face specific restrictions.
Talk to a partner about your situation — no pitch, no obligation. If we're not the right firm for it, we'll tell you that too.
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