The Reserve Bank of India vide Notification No. FEMA.344/2015 RB dated June 11, 2015 made certain amendments in the RBI regulations with reference to the provisions governing the issue of options/sweat equity shares by listed and unlisted companies under the Companies Act, 2013, SEBI Guidelines and FEMA, 1999.

Prior to the amendment, an Indian company could issue shares under an ESOP scheme to its employees or employees of its joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, directly or through a trust, provided the scheme had been drawn in accordance with the Companies Actor SEBI Regulations as the case may be. In addition to this, the face value of the shares allotted under the scheme to nonresident employees could not exceed 5% of the paid up capital of the issuer.

Now, an Indian company may issue “employees’ stock option” and/or “sweat equity shares” to its employees/ directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/ subsidiaries who are resident outside India, provided that:

  1. The scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013, as the case may be.
  2. The “employee’s stock option”/ sweat equity shares issued to non-resident employees/directors under the applicable rules/regulations are in compliance with the sectoral cap applicable to the said company. 
  3. Issue of “employee’s stock option”/ sweat equity shares in a company where foreign investment is under the approval route or where an employee/director is a citizen of Bangladesh/Pakistan shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.