Write this so the employee actually understands it. Most grant letters are read once, by someone who has never held an option before, and the two things they most need to know — that vesting depends on staying, and that exercising creates a tax bill payable in cash before the shares can be sold — are usually the two things a grant letter leaves out.
Employee Stock Option Grant Letter
Under the [COMPANY NAME] Employee Stock Option Scheme [YEAR]
Write this so the employee actually understands it. Most grant letters are read once, by someone who has never held an option before, and the two things they most need to know — that vesting depends on staying, and that exercising creates a tax bill payable in cash before the shares can be sold — are usually the two things a grant letter leaves out.
[COMPANY NAME] CIN: [CIN] [REGISTERED OFFICE]
Private and confidential
Date: [DATE]
[EMPLOYEE NAME]
[DESIGNATION] Employee ID: [ID]
[ADDRESS]
Dear [FIRST NAME],
Grant of employee stock options
We are pleased to inform you that the Board of Directors has approved a grant of stock options to you under the [COMPANY NAME] Employee Stock Option Scheme [YEAR] (the "Scheme"), in recognition of your contribution to the Company and of the contribution we expect from you in the years ahead.
The particulars of your grant are set out below. This letter should be read together with the Scheme, a copy of which is enclosed. Where this letter and the Scheme differ, the Scheme prevails.
Particulars of your grant
| Item | Detail |
|---|---|
| Grant date | [DATE] |
| Number of options granted | [NUMBER] |
| Each option entitles you to | One equity share of the Company of face value ₹ [FACE VALUE] |
| Exercise price per share | ₹ [PRICE] |
| Total exercise price if all options are exercised | ₹ [AMOUNT] |
| Vesting commencement date | [DATE] |
| Vesting period | [4] years |
| Cliff | [12] months from the vesting commencement date |
| Exercise period | [NUMBER] years from each vesting date |
| Exercise window after you leave | [NUMBER] days from your last working day, for vested options only |
| Performance conditions | [None, other than continued employment / DESCRIBE] |
| Options as a percentage of fully diluted capital | Approximately [PERCENTAGE] per cent as at the grant date (this percentage will reduce as the Company issues further shares) |
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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.
A grant letter is usually the only document about equity that an employee will ever read carefully. If it is drafted as a defensive legal instrument, the employee takes away nothing except a number, and later feels misled when the number turns out to be conditional. The plain-language section and the worked illustration in this template exist for that reason and are the parts most worth keeping.
Employees consistently underestimate the cash cost of exercising, because the tax falls due on a gain they cannot realise. Showing the arithmetic once, with real numbers, prevents a category of grievance that surfaces years later at exactly the point the company wants goodwill — during an exit.
The grant particulars record the percentage as at the grant date and say expressly that it will reduce. Employees who are told a percentage and not told about future dilution treat the percentage as fixed. Say it in the letter.
The acknowledgement is not a formality: it is what makes the grant provable, and it is what records that the employee was told about vesting, tax and illiquidity. Unsigned acknowledgements accumulate quickly. Chase them within the thirty days and keep them with the option register.
A thirty or ninety day window, combined with a cash tax cost, means most departing employees forfeit vested options in practice. That may be intended. If it is not, extend the window for good leavers — it costs the company almost nothing and is one of the few equity terms employees discuss with each other.
Consultants, advisers, and people engaged through a service company are not eligible under a stock option scheme. If a grant letter is issued to one of them, the grant is defective. Check the engagement status, not the job title, before issuing.
The nomination on the acknowledgement is worth collecting. On death, options vest in full and are exercisable by the legal heirs or nominee. Without a nomination, the company is left dealing with a succession question at a difficult moment.
A schedule expressed only in percentages generates arguments about rounding and about which day of the month vesting occurs. Attach the month-by-month table with dates and numbers, and keep a copy with the option register.
Where the company is an eligible startup, the withholding on the perquisite may be deferred. Eligibility is narrower than recognition as a startup generally. If it applies, say so in the letter, because it materially changes the cash position at exercise — but explain that the deferral moves the liability rather than removing it.
This letter should not introduce a term the scheme does not permit — a shorter vesting period than the statutory minimum, a different leaver treatment, an exercise price below face value. Where a bespoke term is genuinely needed, check that the scheme allows the Board to vary it, and record the variation in the board resolution approving the grant.
Every grant should be approved by the Board or the compensation committee before the letter is issued, with the grantee, the number, the exercise price and the vesting terms recorded in the resolution. A letter issued ahead of the resolution is a defect that is easy to avoid and awkward to explain.
Reflects Indian law current as of {{DATE OF USE}}. The tax treatment of perquisites on exercise, the withholding mechanics and any startup deferral change — have the letter and the illustration reviewed by a tax adviser before the first grant, and refresh the illustration when rates change.
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.