Cross-Border Issuance Of ESOPs: Developing Indian Landscape

I. Background

Indian resident employees are increasingly granted stock options in the form of employee benefits schemes in their foreign parent companies. These options allow employees the right to subscribe to shares or other equity interests in the issuing foreign entity upon vesting. As per the Foreign Exchange Management Act, 1999 (“FEMA”) and the rules and regulations, an ‘employee benefits scheme' is defined as “any compensation or incentive given to the directors or employees of any entity which gives such directors or employees ownership interest in an overseas entity through ESOP or any similar scheme.” Therefore, this applies not only to Employee Stock Option Plans (“ESOPs”) but also includes schemes such as restricted stock unit schemes (RSUs), and employee stock purchase schemes (ESPS), amongst others.