New Delhi, June 10: Government proposes to limit the amount of equity a company may offer under an employee stock option (ESOP) scheme to five per cent of the amount of total capital after the issue is made. Government has laid down guidelines for companies wanting to issue ESOPs in the Companies (Amendment) Bill 2003, adding that in the case of listed companies, Sebi norms on ESOPs will be applicable instead.

"A company may, at any time, increase its subscribed capital by giving an option to its employees, officers or working directors to purchase securities pursuant to a scheme of option framed by the company," according to the bill, which was introduced in parliament in the recently-concluded budget session.
It also adds that every employee stock option shall be made "in such a manner that the amount of issue of shares under the ESOP and the share in the capital does not exceed more than five per cent of the amount of total capital after such issue".
Government's recommendations on ESOPs follow close on the heels of department of company affairs planning to issue detailed guidelines on sweat equity and preferential allotments for unlisted companies. Bureau Report