ESOP Compliance Checklist for Unlisted Companies (Section 62(1)(b) & Rule 12)

This is an operational checklist for an unlisted company issuing shares under an employees’ stock option scheme under Section 62(1)(b) of the Companies Act, 2013 read with Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014. It is not a substitute for the full legal guide, the scheme, or the Articles. Listed companies follow SEBI SBEB 2021, not this Rule 12 sequence.

Before the Board meeting that recommends the scheme

• Confirm the company is unlisted (or that you are on the SEBI path, not this list).
• Read the Articles: power to issue ESOPs, and whether a special resolution of members is required in addition to the Act.
• Confirm authorised capital can absorb the options; if not, schedule increase of authorised capital first.
• Draft the scheme: class of employees, total options, vesting, exercise price or formula, lock-in, lapses, and administration.
• Prepare explanatory statement material facts under Section 102 for the members’ meeting.

Members’ approval (Section 62(1)(b))

• Default: special resolution. Private companies not in default of specified filings may use an ordinary resolution under the MCA exemption of 5 June 2015 — confirm current eligibility.
• Issue notice with explanatory statement covering Rule 12 particulars (total options, class of employees, vesting, exercise, appraisal, lock-in, and related-party grant if any).
• Pass the resolution. File MGT-14 where Section 117 requires it.
• Do not treat Board approval of the scheme as a substitute for members’ approval where the Act requires it.

Grant, vesting, and exercise

• Issue grant letters consistent with the approved scheme. Record grants in Register SH-6 (Rule 12(10)).
• Minimum vesting period of one year from grant (Rule 12(6)(a)), unless a specified exception in the Rules applies.
• Board (or committee) allots shares on exercise within authorised capital. Issue share certificates / credit demat as applicable.
• File PAS-3 for allotment. Update the Register of Members. File SH-7 only if authorised capital changed.

Ongoing and year-end

• Keep SH-6 current: grants, vesting, exercise, lapses, and cancellations.
• Disclose in the Board’s Report as the Act and Rules require.
• Track lapsed options that return to the pool under the scheme.
• If you later list, migrate the scheme to SEBI SBEB 2021 — do not assume Rule 12 continues unchanged.

What this checklist does not repeat

Model resolution wording, the full Rule 12 disclosure table, and Board versus members split live in the ESOP Section 62(1)(b) guide. Use that page for drafting. Use this page as a working tick-list on the file.

Frequently asked questions

This article is informational and is not legal advice. Confirm the current Companies Act, 2013, Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014, any scheme documents, and (for listed companies) the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, before you issue or file anything.

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