Exercise is the point at which an option becomes a share and a tax liability crystallises. Before signing, be sure you know three things: how many options have actually vested, what the total cash cost will be including tax, and whether you will be able to sell the shares. If any of the three is unclear, ask before you sign.
Notice of Exercise of Stock Options
Under the [COMPANY NAME] Employee Stock Option Scheme [YEAR]
Exercise is the point at which an option becomes a share and a tax liability crystallises. Before signing, be sure you know three things: how many options have actually vested, what the total cash cost will be including tax, and whether you will be able to sell the shares. If any of the three is unclear, ask before you sign.
To,
The Board of Directors
[COMPANY NAME]
[REGISTERED OFFICE ADDRESS]
Date: [DATE]
Subject: Exercise of vested stock options
Dear Sirs,
I refer to the options granted to me under the grant letter dated [DATE] pursuant to the [COMPANY NAME] Employee Stock Option Scheme [YEAR] (the "Scheme"). I hereby give notice that I wish to exercise the vested options set out below and to subscribe for the corresponding equity shares of the Company.
Part A — Particulars of the option holder
| Item | Detail |
|---|---|
| Name | [NAME] |
| Employee ID | [ID] |
| Designation and department | [DESIGNATION], [DEPARTMENT] |
| Date of joining | [DATE] |
| Current status | [In employment / Under notice, last working day ______ / Former employee, last working day ______ / Legal heir or nominee of the late ______] |
| PAN | [PAN] |
| Residential status for tax purposes | [Resident / Non-resident] |
| Address for correspondence | [ADDRESS] |
| Email and telephone | [EMAIL] / [PHONE] |
| Demat account — DP ID and Client ID | [DETAILS / Not applicable, shares to be issued in physical form] |
Part B — Options being exercised
| Grant letter dated | Options granted | Vested to date | Previously exercised | Available to exercise | Being exercised now | Exercise price (₹) | Amount payable (₹) |
|---|---|---|---|---|---|---|---|
| [DATE] | [NUMBER] | [NUMBER] | [NUMBER] | [NUMBER] | [NUMBER] | [PRICE] | [AMOUNT] |
| [DATE] | [NUMBER] | [NUMBER] | [NUMBER] | [NUMBER] | [NUMBER] | [PRICE] | [AMOUNT] |
| Total | [NUMBER] | [NUMBER] | [NUMBER] | [NUMBER] | [NUMBER] | [AMOUNT] |
5 more pages in the Word file
Preview of the first page. Highlighted fields are the ones you fill in — they appear the same way in Word. Scroll the preview to read on; the full document runs to 6 pages.
These notes accompany the template and explain the drafting choices, the compliance points and the mistakes most often made with this document. They appear as a final page in the Word file, intended to be deleted before the document is executed.
Employees frequently miscalculate what has vested, usually by counting from the offer date rather than the vesting commencement date, or by forgetting a suspension of vesting during unpaid leave. Step 2 of the processing record is the check. Accepting an exercise of options that have not vested, and allotting shares against it, is not curable by agreement.
A vested option lapses at the end of its exercise period, and for a departing employee the window is usually short. A notice received a day late is a notice received after the option ceased to exist. Date-stamp on receipt and confirm the window is open before doing anything else.
The perquisite is computed on the fair market value at the date of exercise. For an unlisted company that requires a valuation from a person qualified to give one, and it must be current at the exercise date. Companies that use the price of the last funding round, months or years old, are exposed on both the withholding computation and the employee’s return.
This is the practical heart of the transaction and the source of most disputes. The employee must find the exercise price plus the tax, in cash, at a time when the shares cannot be sold. Communicate the computed amount at step 6 before the employee commits, not after. Where a liquidity event is available, a cashless exercise avoids the problem entirely and should be offered.
The Company is liable for the withholding whether or not it collects it from the employee. Allotting shares before the amount is received leaves the Company carrying the liability with no leverage. Declaration 3 and step 7 close that gap.
Where the Company is an eligible startup, the obligation to deduct may be deferred until the earliest of a prescribed period, the sale of the shares, or the employee ceasing to be employed. Eligibility is narrower than recognition as a startup generally. If the deferral is applied, record it at step 6 and track the trigger events — the liability returns, often after the employee has left.
An employee who becomes a shareholder without acceding to the shareholders’ agreement is a minority holder not bound by the transfer restrictions or the drag. Chasing the signature afterwards, when the employee has already got the shares, is much harder. Step 9 precedes step 10 deliberately.
Shares cannot be allotted beyond the authorised share capital. On a large exercise, or several exercises around a liquidity event, the headroom can run out. Step 8 catches it before the allotment resolution rather than after.
On death, options vest in full and are exercisable by the legal heirs or nominee. The Company should require proper succession documents, and where there is no nomination and no clear documentation, should take advice rather than allotting to whoever presents the notice. This is a situation handled badly under time pressure; the nomination collected at grant is what prevents it.
Return of allotment, share certificates duly stamped, the register of members, the register of options and the capitalisation table all need updating. Steps 11 to 16 are the ones most often deferred and most often found incomplete in diligence, because the exercise itself feels finished once the shares are allotted.
The second page is an internal record and should not be sent to the employee. It is the evidence that vesting was verified, the valuation was current, the withholding was computed and deposited, and the filings were made — which is precisely what an auditor, a tax officer or an acquirer will ask about.
Reflects Indian law current as of {{DATE OF USE}}. The basis of valuation for the perquisite, the withholding mechanics and any startup deferral change — have the computation reviewed by a tax adviser before the first exercise, and refresh the valuation basis each year.
This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, company secretary, or chartered accountant as relevant) before you rely on it.