Difference between ESOP and Sweat equity shares

Specifications

ESOP (Employees Stock Option Plan)

Sweat Equity Shares

Nature

Directors and staff are given ESOPs as incentives and as retention plans. They grant employees the right to exercise their option to buy the shares; they do not impose any obligations on them.

The ESOP is given to the employees in the form of an option to buy the shares at a certain price at a later date. The employee or director only receives these shares after activating their ESOP grant option.

   Allotment

The ESOP is given to the employees in the form of an option to buy the shares at a certain price at a later date. The employee or director only receives these shares after activating their ESOP (employee stock option plan)

grant option.

Sweat equity shares are given directly to employees or directors at a discount or for a consideration other than cash.

   Eligibility

1. A firm employee who works permanently both within and outside India.
2. A company director can be either a full- or part-time director but not an independent director.
3. A permanent employee or director of a holding company, an affiliated company, or a subsidiary business in India or abroad. The following workers, however, are disqualified:

• A worker who promotes the business or is a member of the promoter group.

• A director who directly or indirectly owns more than 10% of the outstanding equity shares of the company, whether directly or through a public company or a relative.

1. A permanent worker for the company who is located in or outside India.
2. A company director, whether full-time or not.
3. A permanent employee or director of a holding company’s subsidiary business in India or abroad.

Consideration

The ESOP (employee stock option plan) consideration must be paid in cash.

Sweat equity shares are purchased at a price other than cash or at a discount, which may be partially cash and partly non-cash.

Lock-in period

The lock-in period is chosen by the company.

According to the Companies (Share Capital and Debentures) Rules, the lock-in period is three years.

Pricing guidelines

The exercise price is set by the firm. The Companies (Share Capital and Debentures) Rules do not provide any pricing standards.

Prices are governed by registered valuers.

Restrictions

The company has no limitations on the issuance of ESOPs.

The firm is not permitted to issue sweat equity shares in excess of 15% of the existing paid-up equity share capital in any given year, or shares with an issue value of Rs. 5 crores. Also, no more than 25% of the company’s paid-up equity capital should ever be issued as sweat equity shares.