Can shares be issued at zero-for ESOP

[Jeevan]

Dear friends,

Here is a query,

Can shares be issued at zero value by a private ltd co., particularly
through ESOP...

Rerghards,
Jeevan Varghese

[CS.Alagar M]

Dear Mr.Jeevan,

 

Under the ESOP there is no pricing restriction. However, it will amount to issuance of shares at discount when you are issuing below par value, necessary approval is required under the Companies Act.

--
Thanks & Regards
Alagar
Team Genicon
Corporate Secretarial, Legal, Indirect Taxation And Management Consultant
Tel / Fax: 044-42088484
Mobile: 91-90031 99947
Email:genicons...@gmail.com

[Vivek Hegde]

Dear Jeevan

 

Yes i do agree with Mr. Alagar. ESOPs can be issued at free of cost.

 

If it is Sweat Equity(SE) restrictions mentioned in Sec 79 relating to issue of shares at discount is not applicable.

 

For ESOPs you have to see the applicability of Sec 79

 

rgds

 

Koramangala, Bangalore-560034
Mob: 9019756940

[Jeevan]

Dear friends,

Thank you for your replies,but again i have some doubts.

See as per 79 shares can be issued at discount,only with the approval
of central government ,right?
and that too under normal circumstances maximum of 10% discount on par
value...
Then how can we go ahead with it for issue at Rs.0, under an ESOP
plan...

Did any section, specifies for compulsory consideration for issue of
shares?

Again one doubt is that whether this section will aply to private
limited co,as there is a refernce in the section 2(iii)like"company
entitled to commence the business"

Reagrds,
Jeevan varghese


text -

[Vivek Hegde]

Dear Jeevan

 

Sec 79 is applicable to Pvt cos also. Although certificate of commencement of Biz is not required for Pvt Co, it is entitled to commence business after getting Certificate of Incorporation.

 

rgds

 

--
CS Vivek Hegde,B.com, ACS, CWA
Company Secretary in Practice
No. 405, 4th Block, 7th Cross
Koramangala, Bangalore-560034
Mob: 9019756940

[chakri hegde]

Dear All,

 

Further to the discussion relating to Issue of Shares under ESOP at Zero price, I have the following opinion (please correct me if I am wrong)

 

Here there are two situations:

 

1. Issue Shares under ESOP when FBT chargable to tax in the hands of Employers.

 

As you know, here the value of Fringe Benefit would be the difference between FMV of the shares on the date on which the option vests with the employee and the amount actually paid by or recovered from the employee to whom the shares are being issued.

 

If the company issues the shares free of cost, then whole amount of FMV will become value of Fringe Benefit and chargable to FBT (as no amt has been paid or recovered from the employees).

 

 

2. Issue Shares under ESOP when FBT chargable to tax in the hands of Employees ( as per the current Budget)

 

Here also the situation is not different. If the shares are offered at free of cost, and then again the whole amt of FMV will be chargable to tax in the hands of eligible employees.  

 

 

So, I think, practically speaking, no company will issue the shares under ESOP at free of cost as a part of tax planning from the point of view of Company (situation 1) and also employees (situation 2).

 

 

Other members views are solicited……………………….

---------------------
With Best Wishes
Chakri G Hegde
Indo Nissin Foods Ltd
Bangalore

On Thu, Jul 23, 2009 at 9:42 AM, Jeevan <jeevanm...@gmail.com> wrote:

[CS.Alagar M]

I understand that there is no FBT from April 2009. Hence, ESOP too is not subject to FBT w.e.f April 2009.