ESOP scheme document (Rule 12).
Full Rule 12 ESOP scheme document for Indian unlisted companies — pool authorisation, eligibility, vesting framework, exercise mechanics, exit liquidity provisions.
An ESOP scheme is more than the grant letter you hand to a new hire. It is a board- and shareholder-approved document that defines the pool size, the categories of eligible employees, the manner in which the board (or the Nomination and Remuneration Committee) will grant options, the vesting framework, the exercise price methodology, the exercise mechanics, and what happens on exit, death, resignation, and termination. Get the scheme right and every grant letter that follows is a one-pager. Get it wrong and you'll be amending the scheme at every round.
This template is the full Rule 12 ESOP scheme document for an Indian unlisted private limited company under Section 62(1)(b) of the Companies Act 2013 and Rule 12 of the Companies (Share Capital and Debentures) Rules 2014. It is sized for a Series Seed to Series C scope — large enough to handle 200+ grants but readable enough that the NRC can administer it without a lawyer on every grant.
The scheme covers the authorisation of an option pool (with the EGM special resolution language attached as Schedule A — note the requirement under Rule 12(1)(b) for a shareholder special resolution), eligibility criteria (the Rule 12 exclusions are baked in — promoters and independent directors are out, with the explicit cross-reference to Section 62 read with Rule 12), the grant process and the NRC's discretion, the standard 4-year vesting / 1-year cliff framework (with alternatives — milestone-based, hybrid), the exercise price methodology with a Rule 11UA fair-value reference for tax-friendly pricing, the exercise window post-vesting and post-termination (90 days is the default for voluntary resignation), and the consequences on death, disability, retirement, termination for cause, and resignation. It also covers buyback liquidity for vested but unexercised options on a secondary or exit, the treatment of options on a change of control (acceleration trigger), and the dilution adjustment mechanics for bonus issues, splits, and consolidations.
The tax block is the differentiator. Rule 11UA fair value at grant for the IndAS 102 amortisation reference (the company recognises the option cost over the vesting period), Section 17(2)(vi) perquisite on the difference between fair value at exercise and exercise price (taxed in the hands of the employee at exercise, TDS by the company), and the capital gains treatment on sale of the underlying shares — all are flagged with worked examples. Form 12BA disclosure is included as a schedule.
This is a scaffold reviewed by an Indian CS and a CA with ESOP accounting experience. Companies with founders / advisors abroad will need to layer FEMA NDI provisions on top.
The whole document.
Every clause and schedule shipped in the DOCX. No surprises after you download.
- Definitions (40+ terms) — Eligible Employee, Grant, Vesting, Exercise, Fair Value
- Pool authorisation reference — EGM special resolution under Rule 12(1)(b)
- Eligibility criteria — Rule 12 exclusions for promoters and independent directors
- Administration — Nomination and Remuneration Committee role and discretion
- Grant process — grant letter format reference, board / NRC resolution
- Vesting framework — 4-year / 1-year cliff default + milestone alternative
- Exercise price — Rule 11UA fair value methodology, IBBI valuer reference
- Exercise window — post-vesting and post-termination (90 days default)
- Consequences on resignation, termination, retirement, death, disability
- Acceleration on change of control — double-trigger framework
- Dilution adjustments — bonus issues, splits, consolidations
- Buyback / secondary liquidity for vested options
- Tax block — Rule 11UA at grant, Section 17(2)(vi) at exercise, TDS, Form 12BA
- IndAS 102 amortisation reference and worked accounting example
- Cap table impact — fully-diluted basis and dilution caps
- Confidentiality, IP, and clawback provisions
- Governing law and dispute resolution
- Schedule A — EGM special resolution format
- Schedule B — grant letter cross-reference
- Schedule C — Form 12BA disclosure format
Timing and trigger.
At the point of first ESOP pool authorisation, typically just before or alongside the seed round. Amend at each subsequent round if pool size changes; amend the scheme document at any change in administration or material terms.
The sections it cites.
Companies Act 2013 — Section 62(1)(b) (employee stock options), Section 67 (no financial assistance for own shares — limited carve-out for ESOPs). Companies (Share Capital and Debentures) Rules 2014 — Rule 12 (ESOP for unlisted companies). Income Tax Act 1961 — Section 17(2)(vi) (perquisite on ESOP exercise) and Rule 11UA of the Income Tax Rules 1962 (fair value methodology). IndAS 102 (Share-based Payment) for accounting. Form 12BA for employer disclosure. SEBI SBEB Regulations 2021 apply to listed entities only — flagged in the scheme but not drafted here.
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Honest disclaimer: this is a scaffold, not legal advice. It is reviewed by Indian practitioners but every filing should be reviewed by your own counsel before execution.
Documents that travel together.
ESOP grant letter
Per-grantee ESOP grant letter for Indian unlisted companies, including the grant table, vesting schedule, exercise mechanics, and a Section 17(2)(vi) employee tax notice.
Shareholders' agreement (SHA) — Indian startup template
Full SHA scaffold for an Indian Companies Act 2013 private limited company — preference rights, ROFR, drag/tag-along, board composition, exit waterfall. Series Seed to Series B.
Founder restricted stock agreement (with vesting)
Restricted stock purchase + reverse-vesting agreement for Indian founders. 4-year vest, 1-year cliff, double-trigger acceleration, good-leaver / bad-leaver mechanics.
Questions buyers ask.
Can promoters and independent directors be granted options under this scheme?+
No. Rule 12 of the Companies (Share Capital and Debentures) Rules 2014 expressly excludes promoters (other than promoter-employees who are in actual employment) and independent directors from ESOP eligibility for unlisted companies. The template enforces this exclusion in the eligibility section. For listed entities, separate SEBI SBEB Regulations 2021 apply.
How does the perquisite tax actually work at exercise?+
On exercise, the difference between the fair market value of the share on the exercise date (per Rule 3 of the Income Tax Rules 1962) and the exercise price the employee actually pays is taxed as a perquisite under Section 17(2)(vi) in the hands of the employee. The company deducts TDS on that perquisite under Section 192 and reflects it in Form 12BA. The capital gains clock starts on exercise — subsequent sale of the share is a separate capital gains event.
Does the scheme need shareholder approval?+
Yes — Rule 12(1)(b) requires a shareholder special resolution to authorise the ESOP pool. The scheme document references this resolution; the EGM special resolution format is included as Schedule A. The MGT-14 filing for the special resolution must be lodged within 30 days.
Has this template been reviewed by a practitioner?+
Yes. Templates are drafted by our editorial team with input from Indian practitioners across corporate secretarial, valuation, and AIF practice. That said, every filing should be reviewed by your own counsel before execution. This is a scaffold, not legal advice.
Can I customise it?+
Yes — open the PDF in any editor that supports text extraction (Word, Google Docs, Pages all paste cleanly from the PDF), or use it as a structural reference for your own draft. Sections are organised modularly so you can keep what applies, swap defaults where flagged, and slot in your facts. Annotations note which clauses are negotiable and which are statutory minimums you can't drop. An editable .docx version is on the roadmap.
Or skip the template
and run the workflow.
See how Company OS runs ESOP from grant to perquisite tax. The template gets you to the first draft; Kapitalyze gets you to the filing, the register update, and the audit trail in one workflow.