# Board and Shareholder Approval for ESOP: Process, Resolutions, Timeline Published: 30 Sep 2026 Author: Treelife Practice area: Compliance Tags: ESOP approval process timeline India, ESOP board resolution format India, ESOP notice of general meeting format, ESOP shareholder approval through postal ballot, ESOP special resolution for private company, MGT-14 filing for ESOP scheme, Rule 12 explanatory statement for ESOP, separate resolution for ESOP subsidiary employees Source: https://treelife.in/compliance/board-and-shareholder-approval-for-esop/ ## Summary - In India, an unlisted company must grant ESOPs only after a fixed sequence: board resolution, shareholder resolution, and ROC filing, in that order. - The legal basis is Section 62(1)(b) of the Companies Act 2013 read with Rule 12 of the Companies (Share Capital and Debentures) Rules 2014, which requires shareholder approval before shares can be offered under the scheme. - Shareholder approval must be passed on a notice carrying the Rule 12(2) explanatory statement, and a special resolution is the default vote required. - Form MGT-14 for the special resolution must be filed with the Registrar of Companies within 30 days of passing. - Board meeting notice must be given at least 7 days in advance under Section 173(3), and draft minutes must go to directors within 15 days under the revised SS-1 (effective 01/04/2024). - Members' meeting requires 21 clear days' notice under Section 101(1), unless shorter notice is validly agreed. - Before board approval, companies must check the Articles of Association and any shareholders' agreement for restrictions on issuing shares to employees, amending the AoA by special resolution under Section 14 if needed. - If authorised share capital is insufficient to cover the ESOP pool, a Section 61 increase and Form SH-7 filing must be completed first. - A grant made via offer letter before shareholder approval is legally invalid, and at least one year must elapse between grant and vesting per Rule 12(6)(a). --- Blog Content Overview - [0.1 What approvals does a company need before granting ESOPs in India?](#What_approvals_does_a_company_need_before_granting_ESOPs_in_India) - [1 In what order does board and shareholder approval for ESOP happen?](#In_what_order_does_board_and_shareholder_approval_for_ESOP_happen) - [2 What must the board resolution for ESOP record?](#What_must_the_board_resolution_for_ESOP_record) [2.1 Do private companies need to file the board resolution for ESOP in Form MGT-14?](#Do_private_companies_need_to_file_the_board_resolution_for_ESOP_in_Form_MGT-14) - [3 Which shareholder resolution does an ESOP scheme need: ordinary or special?](#Which_shareholder_resolution_does_an_ESOP_scheme_need_ordinary_or_special) [3.1 Can a private company approve an ESOP scheme by ordinary resolution?](#Can_a_private_company_approve_an_ESOP_scheme_by_ordinary_resolution) - [3.2 Why a special resolution is the safer route](#Why_a_special_resolution_is_the_safer_route) - [3.3 How is a special resolution counted?](#How_is_a_special_resolution_counted) - [4 What must the notice and explanatory statement contain for ESOP approval?](#What_must_the_notice_and_explanatory_statement_contain_for_ESOP_approval) [4.1 Can the ESOP scheme be approved at an AGM instead of an EGM?](#Can_the_ESOP_scheme_be_approved_at_an_AGM_instead_of_an_EGM) - [5 How is the general meeting run, and what goes into Form MGT-14?](#How_is_the_general_meeting_run_and_what_goes_into_Form_MGT-14) - [6 Which ESOP changes need a fresh board and shareholder approval?](#Which_ESOP_changes_need_a_fresh_board_and_shareholder_approval) [6.1 What do the board’s grant and allotment resolutions say?](#What_do_the_board8217s_grant_and_allotment_resolutions_say) [6.1.1 Adding subsidiary grants or topping up the pool? Let’s Talk](#Adding_subsidiary_grants_or_topping_up_the_pool_Let8217s_Talk) - [6.2 Is a separate resolution needed for employees of a subsidiary?](#Is_a_separate_resolution_needed_for_employees_of_a_subsidiary) - [7 How long does board and shareholder approval for ESOP take?](#How_long_does_board_and_shareholder_approval_for_ESOP_take) [7.1 How should ESOP approval be timed against a funding round?](#How_should_ESOP_approval_be_timed_against_a_funding_round) - [7.2 Can ESOPs be granted before Form MGT-14 is filed?](#Can_ESOPs_be_granted_before_Form_MGT-14_is_filed) - [8 What changes for listed companies and DPIIT startups?](#What_changes_for_listed_companies_and_DPIIT_startups) [8.1 Listed companies](#Listed_companies) - [8.2 DPIIT-recognised startups](#DPIIT-recognised_startups) - [8.3 Does the Corporate Laws (Amendment) Bill, 2026 change these approvals?](#Does_the_Corporate_Laws_Amendment_Bill_2026_change_these_approvals) - [9 Common mistakes that cost founders time and money](#Common_mistakes_that_cost_founders_time_and_money) [9.1 Sending option counts in offer letters before the general meeting](#Sending_option_counts_in_offer_letters_before_the_general_meeting) - [9.2 Relying on the ordinary resolution exemption with overdue filings](#Relying_on_the_ordinary_resolution_exemption_with_overdue_filings) - [9.3 Writing a thin explanatory statement](#Writing_a_thin_explanatory_statement) - [9.4 Missing the separate resolutions](#Missing_the_separate_resolutions) - [9.5 Filing Form MGT-14 late or without shorter notice consents](#Filing_Form_MGT-14_late_or_without_shorter_notice_consents) - [10 Before the first grant letter goes out](#Before_the_first_grant_letter_goes_out) - [11 FAQs on board and shareholder approval for ESOP](#FAQs_on_board_and_shareholder_approval_for_ESOP) [11.0.0.1 Regulatory references](#Regulatory_references) Board and shareholder approval for ESOP decides whether an option grant is valid or only a promise in an offer letter. In India, an unlisted company clears it in a fixed order: a board resolution approving the scheme and calling the meeting, a shareholder resolution passed on a notice that carries the Rule 12(2) explanatory statement, and a filing with the Registrar of Companies (ROC). The order, the vote required and the wording of each resolution are where most companies slip. This article sets out each approval, specimen wording, a timeline in days and the events that force a fresh approval. ### What approvals does a company need before granting ESOPs in India? Before granting any option, an unlisted company needs a board resolution approving the scheme and calling a general meeting, then shareholder approval passed on a notice carrying the Rule 12(2) explanatory statement (Section 62(1)(b), Companies Act 2013, read with Rule 12 of the Companies (Share Capital and Debentures) Rules 2014). A special resolution is the default vote, and [Form MGT-14](https://treelife.in/services/secretarial-compliance/event-based/) is filed within 30 days. ## In what order does board and shareholder approval for ESOP happen? The board approves the scheme and the meeting notice, the members approve the scheme on a notice carrying the Rule 12(2) statement, the company files Form MGT-14 for a special resolution, and only then does it grant options. Rule 12 bars a company from offering shares under a scheme unless shareholder approval is in place. Two checks come before step one. First, read the Articles of Association (AoA) and any shareholders’ agreement (SHA) for limits on issuing shares to employees or on pool size. If the AoA does not permit issue to employees, alter it by special resolution (Section 14) as the first item of the same notice, or at an earlier meeting. Second, confirm the authorised share capital covers the pool. If it does not, the increase under Section 61 and the Form SH-7 filing come first, as set out in Treelife’s guide to [increasing authorised share capital](https://treelife.in/legal/increase-authorised-share-capital/). **Table 1: Approval sequence for an ESOP scheme in an unlisted company** StepWho approvesWhat is passedLegal sourceTiming rule1BoardScheme, notice, explanatory statement, authorised signatorySection 179(3), Section 101Board notice at least 7 days (Section 173(3)); draft minutes to directors within 15 days (revised SS-1, effective 01/04/2024)2MembersResolution approving the schemeSection 62(1)(b), Rule 12(1)21 clear days’ notice (Section 101(1)) unless shorter notice is validly agreed3CompanyForm MGT-14 for the special resolutionSection 117(1) and (3)(a)Within 30 days of passing4Board or committeeGrant resolution naming employees and option counts; grant lettersScheme terms, Rule 12(6)(a)After step 2; at least one year from grant to vesting5CompanyRegister of Employee Stock Options in Form SH-6Rule 12(10)Forthwith on grant6BoardAllotment on exercise; Form PAS-3Section 179(3)(c), Section 39(4)PAS-3 within 30 days of allotment The board goes first because the notice and the explanatory statement are board documents under Sections 101 and 102, and the scheme content is fixed at that meeting. Hold a real meeting, in person or by video conference. Section 179(3) requires the board’s power to issue securities to be exercised by resolution passed at a meeting, and reviewers treat scheme approval the same way. A [circular resolution](https://treelife.in/compliance/circular-resolution-understanding-meaning-process-structure/) at this stage invites a diligence query. Grants wait because Rule 12 makes shareholder approval a condition of offering shares under the scheme. An offer letter that states an option count before the general meeting is an offer made without that approval. ## What must the board resolution for ESOP record? The board resolution approves the scheme document, approves the general meeting notice with its explanatory statement, fixes the meeting date, authorises an officer to send notices and file forms, and records who administers the scheme afterwards. A director who is a likely grantee discloses the interest before the vote (Section 184). A complete board resolution covers six items: - Scheme approval: the scheme name, pool size, class of shares and eligible employee classes. - Notice approval: date, time, venue or video conference link, and the business to be transacted. - Explanatory statement: approved in full, with every Rule 12(2) item. - Authorised persons: who signs and sends the notice to every member, director and the auditor (Section 101(2)), and who files Form MGT-14. - Administration: whether the board or a compensation committee grants options, and the limits of that delegation. - Interest disclosure: any director who may receive a grant, recorded before discussion. A private company that is not a subsidiary of a public company is exempt from the Nomination and Remuneration Committee requirement in Section 178 under G.S.R. 464(E). Name the body that will grant, the board or a committee the board constitutes, and state its limits in the resolution. Where an NRC already exists, the board can designate it as the compensation committee. A public company or a subsidiary of one should check Section 178 and the prescribed thresholds. Specimen wording for the operative part: > Resolved that pursuant to Section 62(1)(b) of the Companies Act, 2013, Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 and the Articles of Association, the draft [Company name] Employee Stock Option Scheme 2026 for a pool of [number] options be and is hereby approved, subject to the approval of the members. > > > > Resolved further that the notice of the [extraordinary] general meeting to be held on [DD/MM/YYYY] at [time] at [venue or link], together with the explanatory statement under Section 102 containing the particulars required by Rule 12(2), be and is hereby approved. > > > > Resolved further that [name], Director, or [name], Company Secretary, be authorised to send the notice to every member, director and the auditor, to file Form MGT-14 and to do all acts necessary to give effect to this resolution. > > > > Resolved further that [the Board or the compensation committee] be authorised to administer the Scheme and to grant options to eligible employees in accordance with its terms. ### Do private companies need to file the board resolution for ESOP in Form MGT-14? No, provided the company is not a subsidiary of a public company (which Section 2(71) treats as public) and has not defaulted on financial statements (Section 137) or annual returns (Section 92). Section 117(3)(g) does not apply to private companies under G.S.R. 464(E) dated 05/06/2015, as amended by G.S.R. 583(E) dated 13/06/2017. Several guides list MGT-14 for the board resolution without separating private from public companies, so the instruction to file it is common and often wrong for a private company. A public company should test whether the resolution falls within Section 179(3) and Rule 8 of the Companies (Meetings of Board and its Powers) Rules 2014. Recusal rules and the relief for interested directors in private companies sit in Treelife’s guide to [board resolution formats](https://treelife.in/compliance/board-resolution-formats-for-company/). ## Which shareholder resolution does an ESOP scheme need: ordinary or special? Section 62(1)(b) and Rule 12(1) require a special resolution. A private company with current filings can rely on G.S.R. 464(E) dated 05/06/2015 to pass an ordinary resolution instead, but Rule 12(1) still says special resolution. Treelife recommends a special resolution in every case. **Table 2: Shareholder resolution required by company type** Company typeResolution for the schemeSourceCondition or catchUnlisted public companySpecialSection 62(1)(b), Rule 12(1)NonePrivate company, filings current, not a subsidiary of a public companyOrdinary permitted, special saferG.S.R. 464(E) dated 05/06/2015, Rule 12(1)Rule 12(1) was not amended to match the exemptionPrivate company that is a subsidiary of a public companySpecialSection 2(71) proviso, Section 62(1)(b)Deemed public, so the private company exemptions do not applyPrivate company in default on Section 137 or Section 92 filingsSpecialSection 62(1)(b)Exemption is lost while the default continues (G.S.R. 583(E) dated 13/06/2017)Listed companySpecial, plus separate resolutions for specified grantsRegulation 6, SEBI SBEB and SE Regulations 2021Remote e-voting and stock exchange disclosures applyAny company needing an AoA change to allow the schemeSpecial, for the AoA changeSection 14Pass it before or with the scheme resolution ### Can a private company approve an ESOP scheme by ordinary resolution? Yes on the face of the exemption, and the position is unsettled in practice. The notification modified Section 62(1)(b) for private companies, but the Companies (Share Capital and Debentures) Rules still prescribe a [special resolution](https://treelife.in/compliance/resolutions-in-a-board-meeting-and-general-meeting/) and MCA has not reconciled the two. The relief also depends on the company having filed its financial statements and annual returns, and that is tested on the date of the resolution. ### Why a special resolution is the safer route - Rule 12(1) still requires it, and the exemption notification did not amend the rule. - Section 117(3)(a) makes Form MGT-14 mandatory for it, which leaves a dated public record. - The exemption is conditional, and a missed annual return removes it without notice. - The cost is nil. The notice and statement are identical, and with few shareholders the vote is normally well above the threshold. The choice changes an outcome only where support sits between 50% and 75% of votes cast. There, the exemption is a legal argument, not a clean approval. ### How is a special resolution counted? Section 114(2) requires the votes cast in favour to be at least three times the votes cast against. Abstentions and members who do not vote count on neither side. In practice that means 75% of the votes actually cast, not 75% of all shares. > Read next: how these approvals sit inside the wider registers, filings and Board’s report obligations in Treelife’s guide to [ESOP compliance in India](https://treelife.in/compliance/esop-compliance-in-india/). ## What must the notice and explanatory statement contain for ESOP approval? The notice must set out the business as a special resolution and carry an explanatory statement under Section 102 with the thirteen disclosures in Rule 12(2), from the total number of options to the accounting standards statement. A statement that only gives the pool size fails Rule 12(2), and the defect is usually found in investor due diligence. The notice goes to every member, director and the auditor, and to the secretarial auditor where the company has one (Section 101(2)), on 21 clear days (Section 101(1)). It should close with a statement that the board recommends the resolution. Section 102(2) also requires the statement to disclose the interest of every director, key managerial person and their relatives in the business. Attach the scheme to the notice, or state where members can inspect it. **Table 3: Rule 12(2) clauses and the defect reviewers flag most often** Rule 12(2) clauseDisclosure requiredDefect seen in review(a)Total number of optionsPool stated as a percentage only, with no number and no check against authorised capital(b)Classes of eligible employeesFounders or a subsidiary’s staff covered in the scheme but not named as a class(c)Appraisal processSilent on who decides, board or committee(d), (e)Vesting requirements, period and maximum vesting periodSchedule given, outer limit missing; vesting shorter than one year (Rule 12(6)(a))(f)Exercise price or formulaFormula refers to a valuation that no one is named to prepare(g), (h)Exercise period and process; lock-inWindow given, process and payment mode missing; lock-in left blank instead of “none”(i)Maximum options per employee and in aggregateOne cap given, not both(j)Valuation method for the optionsMethod not named(k), (l)Lapse conditions; time to exercise on exitLapse grounds and leaver periods drafted in the scheme but not repeated in the statement(m)Compliance with accounting standardsStatement omitted entirely The table shows what goes wrong, not how to design each term. For scheme design, pricing and vesting choices, see Treelife’s guide to [ESOP scheme design](https://treelife.in/taxation/esop-scheme-design-in-indian-startup-tax/). Section 102(2) also requires disclosure of the interest of every director, key managerial person and their relatives in the business. One notice usually carries several items, each voted separately: - Alteration of the AoA, if it does not permit issue to employees (special resolution). - Approval of the scheme. - Authority for the board or committee to administer the scheme and grant options. - Extension of the scheme to employees of a subsidiary or holding company (Rule 12(4)(a)). - Grants of 1% or more of issued capital to an identified employee, one resolution per employee (Rule 12(4)(b)). - For the trust route, the scheme of provision of money to the trust, by special resolution (Rule 16(1)(a)). For unlisted shares Rule 16(1)(c) requires a registered valuer, and Rule 16(1)(d) caps the total at 5% of paid-up capital and free reserves. Specimen wording for the members’ resolution: > Resolved that pursuant to Section 62(1)(b) and other applicable provisions of the Companies Act, 2013, Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 and the Articles of Association, the consent of the members be and is hereby accorded to the [Company name] Employee Stock Option Scheme 2026 (the Scheme), as placed before the meeting and initialled by the Chairman for identification, under which the Board may grant up to [number] options, each exercisable into one equity share of ₹[face value], to eligible employees on the terms in the explanatory statement. > > > > Resolved further that the Board, including any committee it constitutes, be authorised to implement and administer the Scheme and to issue shares on exercise of options. > > > > Resolved further that any Director or the Company Secretary be authorised to file Form MGT-14 and to settle any question arising in giving effect to this resolution. ### Can the ESOP scheme be approved at an AGM instead of an EGM? Yes. The scheme can be taken as special business at an [annual general meeting](https://treelife.in/compliance/understanding-meetings-as-per-the-companies-act-2013/), and the Section 102(1) explanatory statement is then mandatory. Use an AGM only if it falls within the timeline you need, because a separate extraordinary general meeting on shorter notice is often faster for a company waiting on an investor. ## How is the general meeting run, and what goes into Form MGT-14? A valid meeting needs quorum, a chair, a recorded vote and signed minutes. For a private company, quorum is two members personally present unless the AoA sets a larger number (Section 103(1)(b)). Draft minutes go to directors within 15 days and final minutes are entered in the minute book within 30 days (Section 118, revised SS-1 and SS-2 effective 01/04/2024). Form MGT-14 carries the certified resolution and the notice with its explanatory statement (Section 117(1)). Meeting mode: an EGM can be held by video conference or other audio-visual means, or the items can be passed by postal ballot with remote e-voting, under MCA General Circular No. 03/2025 dated 22/09/2025, which continues the relaxation until further orders. Members attending by video count towards quorum under Section 103. A postal ballot needs a cut-off date, notice by email to registered members and a newspaper advertisement of the dispatch (Rule 22(3), Companies (Management and Administration) Rules 2014). The circulars do not extend any statutory timeline. Meeting checklist: - Quorum: confirm and record it at the start. Two members personally present for a private company (Section 103(1)(b)), or more if the AoA says so. A private company that is not a subsidiary of a public company can have its AoA displace Sections 101 to 107 under G.S.R. 464(E), so read the AoA first. - Chair: a director or a member elected under the AoA introduces the item and takes questions. - Vote: record votes for and against on a poll or show of hands. Section 114(2) needs a 3:1 ratio of votes cast for a special resolution. - Minutes: record attendance, questions raised and the vote. Circulate the draft within 15 days, then enter and sign the final minutes within 30 days (revised SS-2, effective 01/04/2024). MGT-14 attachments: - Certified true copy of the special resolution. - Copy of the notice with the Section 102 explanatory statement annexed (Section 117(1)). - Shorter notice consents, where used (see below). - Copy of the approved scheme. Section 117 does not require it, but ROC queries on a bare filing are common, so attach it. Sign the minutes and file within a week of the meeting. A disputed vote or a minority query months later is answered from the minutes, and a rejected form needs time to be re-filed. ## Which ESOP changes need a fresh board and shareholder approval? Four events need a fresh shareholder resolution: grants to employees of a subsidiary or holding company, grants of 1% or more of issued capital to an identified employee in a year, a variation of unexercised terms, and, in practice, an increase in the pool. Individual grants under an approved scheme need only board or committee action. **Table 4: Events after approval and the approval each needs** EventBoardShareholdersSourceGrant to employees of a subsidiary or holding companyApproves noticeSeparate resolutionRule 12(4)(a)Grant to an identified employee of 1% or more of issued capital in one yearApproves noticeSeparate resolutionRule 12(4)(b)Adoption of a second scheme, for example a later ESOP scheme with its own poolApproves scheme and noticeFresh resolution and fresh Rule 12(2) statementSection 62(1)(b), Rule 12(1)Options that lapse or are cancelled returning to the poolRecords the reversalNone, if the approved scheme says lapsed options return to the poolScheme termsVariation of terms not yet exercisedApproves notice with rationaleSpecial resolution, variation not prejudicial to option holdersRule 12(5)Increase in the total poolApproves revised scheme and noticeFresh resolution with a fresh Rule 12(2) statement, by practiceRule 12(2)(a); no express top-up ruleProvision of money to an ESOP trustApproves noticeSpecial resolutionSection 67(3)(b), Rule 16(1)(a)Individual grant under the approved schemeBoard or committeeNoneScheme terms, Rule 12(2)(c)Allotment on exerciseBoard resolution, then Form PAS-3NoneSection 179(3)(c), Section 39(4) Grants above the approved pool are not valid without a fresh resolution, whatever the board has approved. Rule 12 sets no expiry on an approved scheme. [Sweat equity](https://treelife.in/legal/sweat-equity-in-india/) works differently: its special resolution is valid for allotment for 12 months only (Rule 8(3)). ### What do the board’s grant and allotment resolutions say? The grant resolution names each employee, the number of options, the grant date and the exercise price, and cites the scheme and the members’ resolution date. The allotment resolution, passed after exercise, records the exercise, the payment received and the shares allotted, then triggers Form PAS-3 and the SH-6 and members’ register entries. > Resolved that, in terms of the [Company name] Employee Stock Option Scheme 2026 approved by the members on [DD/MM/YYYY], [number] options be and are hereby granted to [employee name] on [DD/MM/YYYY] at an exercise price of ₹[amount] per option, vesting over [period] from the grant date. > > > > Resolved that, pursuant to the valid exercise of [number] vested options by [employee name] and receipt of ₹[amount], [number] equity shares of ₹[face value] each be and are hereby allotted, and the Company Secretary be authorised to file Form PAS-3 and update the registers. Enough for the first grant round. Treelife’s board resolution formats guide carries the fuller specimen set. > #### Adding subsidiary grants or topping up the pool? [Let’s Talk](javascript:void(0)) [ ](https://calendly.com/consulttreelife/20min?utm_source=blogbannertreelife) ### Is a separate resolution needed for employees of a subsidiary? Yes. Rule 12(4)(a) requires approval by separate resolution for grants to employees of a subsidiary or holding company, including overseas subsidiaries. Put it in the notice as its own item so members vote on it apart from the scheme: > Resolved that the benefits of the Scheme be extended to eligible employees of [subsidiary name], a subsidiary of the Company, in terms of Rule 12(4)(a) of the Companies (Share Capital and Debentures) Rules, 2014. The 1% test in Rule 12(4)(b) runs on issued capital, excluding outstanding warrants and conversions, at the time of grant. Where several identified employees cross the line, practitioner guidance under the SEBI regulations is one resolution per employee. Unlisted companies follow the same pattern so members can vote on each name. For grant-level governance after approval, see Treelife’s guide to the ESOP compensation committee. For pool sizing before approval, see [ESOP pool size calculation](https://treelife.in/finance/esop-pool-size-calculation/). ## How long does board and shareholder approval for ESOP take? On full notice periods, shareholder approval comes about 30 days after the board notice goes out, and Form MGT-14 is due by day 60. With valid shorter notice consents at both board and member level, approval can be complete in three to five days. The 30-day filing window runs from the date the resolution is passed (Section 117(1)). **Table 5: Timeline for ESOP approval (calendar days from board notice)** StageStandard routeShorter notice routeBasisBoard notice issuedDay 0Day 0, with written consent of directorsSection 173(3), Secretarial Standard 1Board meetingDay 8Day 0 or 1Section 173(3)General meeting notice sentDay 8Day 1, with member consentsSection 101(1)General meeting heldDay 30Day 3 to 5Section 101(1) proviso, Section 105(4)Form MGT-14 filedBy Day 60; file by Day 35 as practiceDay 6 to 12Section 117(1)First grant lettersFrom Day 31, ideally after filingFrom Day 6Rule 12(1) The shorter notice route figures are a practitioner estimate, not a statutory period. [Flag: confirm day counts for Secretarial Standard 1 and the proxy deposit period before publishing.] Shorter notice for a general meeting other than an AGM needs consent from a majority in number of members entitled to vote who hold at least 95% of the voting share capital (Section 101(1) proviso). Proxy forms can be deposited up to 48 hours before the meeting, so a same-day meeting is realistic only where every member consents. A private company whose AoA sets a different notice period can follow the AoA (G.S.R. 464(E)), as covered in Treelife’s guide to [holding a general meeting at short notice](https://treelife.in/compliance/convening-and-holding-a-general-meeting-at-a-short-notice/). Late filing under Section 117(2) attracts a penalty of ₹10,000 plus ₹100 for each further day, capped at ₹2 lakh for the company, and ₹10,000 plus ₹100 a day, capped at ₹50,000, for each officer in default. Additional filing fees apply under the Companies (Registration Offices and Fees) Rules 2014. ### How should ESOP approval be timed against a funding round? Pass the approvals before the round closes, so the pool sits in the cap table on the closing date. Where the term sheet or shareholders’ agreement lists the pool as a condition precedent or a reserved matter, get the investor’s written consent into the approval file before the board meets. Shorter notice consents are easiest to collect while the shareholder list is still small, before new investors join. ### Can ESOPs be granted before Form MGT-14 is filed? Section 117 gives 30 days to file and does not say the resolution takes effect only on filing. File before the first grant anyway. Investors ask for the acknowledgement, and a grant made ahead of a missing or rejected filing is hard to defend in diligence. When shorter notice was used, attach the member consents to the MGT-14 filing. The ROC Pune penalised a company ₹3,00,000 in adjudication order dated 28/05/2024 for filing without them, as reported in Treelife’s guide above. ## What changes for listed companies and DPIIT startups? Listed companies follow the SEBI SBEB and SE Regulations 2021, which add mandatory separate resolutions, a compensation committee and remote e-voting. [DPIIT-recognised startups](https://treelife.in/startups/startup-india-registration/) follow the same approval steps, but Rule 12 lets them grant options to promoters and directors above 10% for up to 10 years from incorporation. Overseas subsidiary employees need the Rule 12(4)(a) resolution. ### Listed companies Listed companies follow the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021: a special resolution in general meeting (Regulation 6(1)), separate resolutions for secondary acquisition by a trust, subsidiary or holding company grants and grants of 1% or more to identified employees (Regulation 6(3)), a compensation committee (Regulation 5) and voting results to the exchanges (Regulation 44, SEBI LODR Regulations 2015). Regulation 9A, added by the September 2025 amendment, lets founders classified as promoters in a draft offer document retain options granted at least one year before the IPO filing. The amendment was notified on 08/09/2025 (SEBI/LAD-NRO/GN/2025/262) and took effect on publication. The full listed-company layer is in Treelife’s guide to [ESOP compliance in India](https://treelife.in/compliance/esop-compliance-in-india/). ### DPIIT-recognised startups The approval steps do not change. What changes is eligibility: the Rule 12(1) Explanation, as amended by G.S.R. 574(E) dated 16/08/2019, lifts the promoter and 10% director exclusion for startups for up to 10 years from incorporation. If founders are in scope, name them as a class in the explanatory statement and disclose their interest under Section 102(2). Many guides still quote the 2019 definition, including its ₹100 crore turnover limit. The DPIIT startup definition was replaced by notification G.S.R. 108(E) dated 04/02/2026, which supersedes G.S.R. 127(E) dated 19/02/2019 and sets a turnover ceiling of ₹200 crore and a 20-year period for Deep Tech Startups. Rule 12 still cites the 2019 notification and a 10-year period, and CAIRR showed no later amendment to Rule 12 as on 29/09/2026. Until MCA amends Rule 12, plan founder grants inside the 10-year window and do not rely on the 20-year Deep Tech period. ### Does the Corporate Laws (Amendment) Bill, 2026 change these approvals? Not yet. Clause 28 of Bill No. 85 of 2026 would extend Section 62(1)(b) to RSUs and SARs, and the Bill was still pending on 30/09/2026 after the Joint Parliamentary Committee report in early August 2026 (the PRS tracker showed it as pending on 30/09/2026). The Bill also proposes to codify physical, virtual and hybrid meetings and to relax notice periods, which would change the timeline in Table 5 if enacted. Until it is notified, the sequence in Table 1 applies unchanged. The RSU and SAR detail sits in Treelife’s guide to ESOP compliance in India. ## Common mistakes that cost founders time and money ### Sending option counts in offer letters before the general meeting Hiring pressure makes this common. Rule 12 bars offering shares under a scheme without shareholder approval, and the one-year minimum between grant and vesting runs from the grant date (Rule 12(6)(a)). Send offers that state grants are subject to approval, and issue grant letters only after the resolution. Re-papering later moves cliff dates and costs a second round of employee communication. ### Relying on the ordinary resolution exemption with overdue filings The exemption is conditional on current Section 137 and Section 92 filings, and few teams check. Check the company’s filing status on the MCA portal before the meeting, and pass a special resolution regardless. A defective approval means a fresh meeting on 21 clear days’ notice. ### Writing a thin explanatory statement A statement that gives only the pool size omits most of Rule 12(2). Draft against the thirteen items in Table 3 and have someone outside the drafting team tick each one. The cost is a fresh general meeting. ### Missing the separate resolutions Subsidiary employee grants and 1% grants under Rule 12(4) are usually found in [due diligence](https://treelife.in/finance/esop-due-diligence-in-india/), after the grant. Add both resolutions to the first notice even if no such grant is planned yet. The alternative is a second meeting. ### Filing Form MGT-14 late or without shorter notice consents The Section 117(2) penalty is ₹10,000 plus ₹100 a day, capped at ₹2 lakh for the company and ₹50,000 per officer. ROCs adjudicate even inadvertent delay, as in ROC Chennai order PO/ADJ/03-2026/CN/01821 dated 26/03/2026, which penalised a company and its officers for a delay of over 160 days. File within a week of the meeting, with consents attached where shorter notice was used. [Flag: illustrative scenario with illustrative figures. Replace with a confirmed engagement before publishing.] ## Before the first grant letter goes out Board and shareholder approval for ESOP is complete only when four records exist: the board resolution approving the scheme, the notice with the Rule 12(2) statement, the shareholder resolution with its voting result, and the MGT-14 acknowledgement. Confirm the company is current on Section 137 and Section 92 filings, and hold grant letters until all four are on file. A later subsidiary grant, variation or pool increase restarts the cycle for that item only. ## FAQs on board and shareholder approval for ESOP **Q: Does board or shareholder approval trigger any ESOP tax?** **A:** No. Approval creates no taxable event. Tax arises when the employee exercises, as a salary perquisite, and again on sale of the shares. The Income-tax Act 2025 came into force on 01/04/2026 and replaces the 1961 Act. The perquisite charge moves from Section 17(2)(vi) to Section 17(1)(d), and TDS on salary from Section 192 to Section 392. [Flag: one source cites Section 16(2) for the perquisite, so confirm the sub-clause against the gazetted text.] See Treelife’s guide to [ESOP taxation in India](https://treelife.in/taxation/esop-taxation-in-india/). **Q: What does it cost to put ESOP approvals in place?** **A:** The statutory cost is the MGT-14 filing fee, which depends on authorised capital under the Companies (Registration Offices and Fees) Rules 2014, plus additional fees if filed late. Professional fees vary with scheme drafting, the number of shareholders and whether the AoA needs to change. Use the MCA fee calculator for the government fee. **Q: How long does ESOP approval take end to end?** **A:** About 30 days to shareholder approval and up to 60 days to the MGT-14 filing on standard notice. With valid shorter notice consents, approval can take three to five days. Table 5 sets out the stages. **Q: Which documents belong in the ESOP approval file?** **A:** Eleven items to start with: board notice, board minutes, the scheme, the general meeting notice with the explanatory statement, proof of service, shorter notice consents if used, the attendance record, the signed resolution with voting result, investor consent if the SHA requires it, the MGT-14 acknowledgement and the first SH-6 entries, followed by grant letters with signed acceptance forms. Diligence reviewers ask for these in roughly this order. **Q: Do employees of an overseas subsidiary need a separate approval?** **A:** Yes. Rule 12(4)(a) requires a separate members’ resolution for grants to employees of a subsidiary or holding company. FEMA reporting on allotment to non-resident employees is a separate step. See Treelife’s guide to [FEMA compliance for ESOP](https://treelife.in/compliance/fema-compliance-for-esop/). **Q: Can a co-founder who is a promoter receive options?** **A:** Generally no. The Rule 12(1) Explanation excludes promoters, the promoter group and directors holding more than 10% directly, through relatives or through a body corporate. A DPIIT-recognised startup is exempt from that exclusion for up to 10 years from incorporation. Holdings of relatives count towards the 10% test. **Q: Do DPIIT-recognised startups need fewer approvals?** **A:** No. The approval steps are identical. The relaxation in Rule 12(1), as amended by G.S.R. 574(E) dated 16/08/2019, concerns who can receive options. Check that recognition is current under the 04/02/2026 DPIIT notification before granting to founders. **Q: What happens if shareholders do not approve the scheme?** **A:** No option can be validly offered under Rule 12. The company revises the scheme and reconvenes on a fresh notice, on 21 clear days or shorter notice with consents. Hold all grant letters until the resolution is passed. **Q: What if the approvals were defective and grants are already made?** **A:** Pass a fresh, compliant approval and re-paper the grants with correct dates. Section 62 carries no penalty clause of its own, so the residual penalty in Section 450 applies: ₹10,000 plus ₹1,000 a day, capped at ₹2 lakh for the company and ₹50,000 for each officer in default. [Flag: confirm Section 62 has no specific penalty.] The larger cost is usually a diligence finding and a fix to vesting and valuation dates, so get a legal read on accepted options before re-issuing. **Q: Can an investor block or shape the ESOP approval?** **A:** Through the SHA, not the statute. Pool creation or increase is commonly a reserved matter that needs investor or nominee director consent. Check the list before the board meets. See Treelife’s guide to [reserved matters in an SHA](https://treelife.in/legal/reserved-matters-in-sha/). **Q: Can shareholder approval be taken without a meeting?** **A:** Yes, by postal ballot including remote e-voting under Section 110 read with Rule 22 of the Companies (Management and Administration) Rules 2014, and MCA General Circular No. 03/2025 dated 22/09/2025 also allows an EGM by video conference until further orders. A written circulation among shareholders is not a recognised mode for a members’ resolution. Board approval still needs a meeting. **Q: Can the scheme cover employees who join after approval?** **A:** Yes. The scheme can cover present and future employees if the explanatory statement names them as a class (Rule 12(2)(b)). Probation is not defined in Rule 12, so set the point at which an employee counts as permanent in the scheme itself. --- ##### **Regulatory references** - Companies Act, 2013: Section 14 (alteration of articles), Section 39(4) (return of allotment), Section 61 (alteration of share capital), Section 62(1)(b) (further issue to employees), Section 92 (annual return), Section 101 (notice of meeting), Section 102 (explanatory statement), Section 105 (proxies), Section 110 (postal ballot), Section 114 (ordinary and special resolutions), Section 117 (filing of resolutions), Section 118(10) (secretarial standards), Section 137 (financial statements), Section 173(3) (board notice), Section 175 (circular resolution), Section 179(3) (board powers), Section 184 (director interest), Section 2(71) (public company), Section 67(3)(b) (ESOP trust funding), Section 450 (residual penalty). - Rules 8, 12 and 16, Companies (Share Capital and Debentures) Rules, 2014. - Companies (Share Capital and Debentures) Amendment Rules, 2019, G.S.R. 574(E) dated 16/08/2019. - Rule 12, Companies (Prospectus and Allotment of Securities) Rules, 2014 (Form PAS-3). - Rule 8, Companies (Meetings of Board and its Powers) Rules, 2014. - Rule 22 and Rule 24, Companies (Management and Administration) Rules, 2014. ### Related posts: - [PF Compliance in India: Complete guide for Startups & Businesses](https://treelife.in/compliance/pf-compliance-in-india/) - [India Entry Compliance Checklist for Foreign Companies: Complete Guide](https://treelife.in/compliance/india-entry-compliance-checklist-for-foreign-companies/) - [RBI approval foreign company India inward remittance](https://treelife.in/compliance/rbi-approval-foreign-company-india/) - [Arm’s length pricing for Indian startups: documenting related-party transactions before a TP audit](https://treelife.in/compliance/arms-length-pricing-for-indian-startups/) --- This is informational content from Treelife. For advice specific to your situation, contact support@treelife.in