RESERVE BANK OF INDIA
RBI Notification No. FEMA 344/2015 dated 11th June 2015
1. Reserve Bank of India ('RBI') has vide its notification No. FEMA/344/2015 dated 11th June, 2015 amended Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) 2000 (Notification No. FEMA 20/2000-‐RB dated 3 May 2000) so as to define the terms "employee stock option" and "Sweat Equity Shares" and further to substitute the extant Regulation 8 governing "Issue of Shares under Employee Stock Option Scheme to Person Resident Outside India" with a new set of regulations.
2. Definition--‐ Employee Stock Option: "employee stock option" means the option given to the directors, officers "employees‟ of a company or of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-‐determined price;
3. Definition – Sweat Equity Shares: "sweat equity shares" means such equity shares as issued by a company to its directors or employees at a discount or for consideration other than cash, for providing their know-‐how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.
4. In place of existing Regulation 8, the following shall be substituted:
1. An Indian company may issue "employees stock option" and/or "sweat equity shares" to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, provided that:
a) The scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013, as the case may be.
b) The "employee's stock option"/"sweat equity shares" issued to non-‐resident employees/directors under the applicable rules/regulations are in compliance with the sectoral cap applicable to the said company.
c) Issue of "employee's stock option"/sweat equity shares in a company where foreign investment is under the approval route shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.
d) Issue of "employee's stock option"/"sweat equity shares" under the applicable rules/regulations to an employee/director who is a citizen of Bangladesh/Pakistan shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.
2. The Reserve Bank may require the company issuing "employees‟ stock option" and/or "sweat equity shares" to submit such reports and at such frequency as it may consider necessary.
5. The erstwhile restrictions stating that "face value of the shares to be allotted under the ESOP scheme to non resident employees should not exceed 5 % of paid capital of issuing company" has been dispensed with.
The Key
The new regulations have included issuance of shares by way of 'Sweat Equity Shares' also within its purview whereas the old regulation were limited only to issue of shares under 'ESOP Scheme'. It is worth noting that prior to coming into force of Companies (Share Capital and Debenture) Rules, 2014 there were no regulations governing issuance of 'ESOPs' by unlisted public/private entities. Issue of ESOPs by listed company are governed by Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
