Loan to Trust Set up for ESOP
Nishant Jain
Pratik Patodia
The limit for giving loans to a trust set up for an Employee Stock Option Plan (ESOP) scheme depends on the guidelines set forth by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).
As per the Companies Act, 2013, a company can provide loan to its employees or its employee trust for the purpose of acquiring shares of the company only if the loan is given out of its free reserves or securities premium account, or out of the money raised by way of public issue, rights issue or private placement. The loan should not exceed the amount of money standing to the credit of the free reserves or securities premium account.
SEBI guidelines state that a company can provide loan to its employees or its employee trust for the purpose of acquiring shares of the company only if the loan is given out of its free reserves or securities premium account, or out of the money raised by way of public issue, rights issue or private placement. The loan should not exceed the amount of money standing to the credit of the free reserves or securities premium account.
It is important to note that the company should comply with the provisions of Section 185 of the Companies Act, 2013 which deals with the prohibition of loan to Directors and also with the regulations of SEBI and RBI.
It is always advisable to consult with a legal and financial expert to ensure compliance with the laws and regulations.
Pratik Kr. Patodia
ACS, ACMA, RV-SFA (IBBI), B Com (H)
Proprietor
PKP & Associates
Practising Company Secretary
Office: 1st Floor, Suite # 5
8/1 Middleton Row
Kolkata – 700 071, WB, India