Two resolutions are needed, in order: a Board resolution approving the scheme and recommending it, and a members’ resolution approving it. A third is needed at every subsequent expansion. Grants made before the members have approved are not validly granted.
Resolutions Creating and Expanding an ESOP Pool
[COMPANY NAME]
Two resolutions are needed, in order: a Board resolution approving the scheme and recommending it, and a members’ resolution approving it. A third is needed at every subsequent expansion. Grants made before the members have approved are not validly granted.
| Item | Detail |
|---|---|
| Company | [COMPANY NAME], CIN [CIN] |
| Scheme | [COMPANY NAME] Employee Stock Option Scheme [YEAR] |
| Purpose of this resolution | [Adoption of the Scheme and creation of the pool / Expansion of the existing pool] |
| Options currently authorised | [NUMBER] |
| Options being authorised now | [NUMBER] |
| Total after this resolution | [NUMBER], being [PERCENTAGE] per cent on a fully diluted basis |
| Form of members’ resolution | [Special resolution / Ordinary resolution, relying on the relaxation available to private companies] |
| Filing required | [Form MGT-14 within the period prescribed, where a special resolution is passed] |
Part A — Board Resolution
Certified true copy of a resolution passed at the meeting of the Board of Directors held on [DATE] at [TIME] at [PLACE].
The Chairperson informed the Board that, in order to attract and retain talent and to align the interests of employees with those of the shareholders, it was proposed to [adopt an employee stock option scheme and to create a pool of options / expand the existing option pool]. The Chairperson placed before the Board the draft Scheme, the capitalisation of the Company before and after the proposed pool, and confirmed that [the consent required under Clause ______ of the Shareholders’ Agreement dated ______ had been obtained / no consent of any investor was required]. After discussion, the Board passed the following resolutions:
"RESOLVED THAT the [COMPANY NAME] Employee Stock Option Scheme [YEAR], in the form placed before the Board and initialled by the Chairperson for the purpose of identification, be and is hereby approved, subject to the approval of the members.
RESOLVED FURTHER THAT [NUMBER] options be and are hereby authorised for grant under the Scheme, each option conferring on the holder the right to apply for one equity share of the Company of face value ₹ [FACE VALUE] each, representing [PERCENTAGE] per cent of the share capital of the Company on a fully diluted basis, and that the Company keep available within its authorised share capital a sufficient number of unissued equity shares to satisfy all options that may be outstanding.
RESOLVED FURTHER THAT a Compensation Committee comprising [NAMES] be and is hereby constituted, to which the Board delegates the authority to determine the employees eligible for a grant, the number of options to be granted to each, the exercise price, the vesting conditions and the exercise period, in each case in accordance with the Scheme, and to administer the Scheme. [Delete where the Board will administer the Scheme itself.]
RESOLVED FURTHER THAT an [extraordinary] general meeting of the members of the Company be convened on [DATE] at [TIME] at [PLACE] to consider the Scheme, that the notice of that meeting together with the explanatory statement, in the form placed before the Board, be and is hereby approved, and that the Company Secretary or any director be authorised to issue the notice.
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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.
The Board approves and recommends; the members approve. Grants made before the members’ resolution are not validly granted and cannot be cured retrospectively without re-granting on current terms, which changes the economics for the employee. Companies that promise options in offer letters and adopt a scheme a year later create exactly this problem.
The default is a special resolution. A relaxation is available to certain classes of company permitting an ordinary resolution, subject to conditions including that the company is not in default in its filings. Confirm the relaxation applies before relying on it, and record the basis — relying on it wrongly means the scheme was never validly approved.
Options are worthless if there are not enough unissued shares within the authorised capital to satisfy them on exercise. Increasing the authorised capital requires its own resolution, filing and fee. Step 1 of the checklist is first for a reason.
Almost every shareholders’ agreement makes any increase in the option pool a reserved matter requiring the lead investor’s consent. Obtain it in writing before the Board meeting. A pool expanded without the consent is a breach of the investor agreement even if the company law steps were faultless.
Annexure A asks the question explicitly. A pool expansion taken from the pre-money capitalisation in connection with a round dilutes only the existing shareholders and lowers the incoming investor’s effective price; taken post-money, the dilution is shared. On a typical Series A the difference is worth several percentage points of the company. Run the table both ways before agreeing.
Where the options granted to a single employee in a year equal or exceed the prescribed percentage of the issued capital at the time of grant, a separate approval of the members by special resolution is required for that grant. This catches early senior hires in small companies far more often than people expect, because the percentage is measured against a small base.
The members’ resolution expressly waives pre-emption in respect of shares to be allotted on exercise. Without that waiver, existing members could argue that shares must first be offered to them, which would defeat the scheme. Keep the clause.
The resolution authorises the Board to adjust the number of options and the exercise price on a bonus issue, split or similar action. Companies that omit this find they need a fresh members’ resolution at the moment of a corporate action, when there is usually no time.
The register of employee stock options must be maintained in the prescribed form. Companies that start with a spreadsheet and intend to formalise later end up reconstructing years of grants, vestings and lapses from email. Open it at step 8, before the first grant.
Every subsequent increase in the pool requires a fresh Board resolution, a fresh members’ resolution, and the associated filing and investor consent. Companies commonly grant beyond the authorised pool on the assumption that the original authorisation was open-ended. Reconcile the register to the authorisation quarterly.
Reflects Indian law current as of {{DATE OF USE}}. The form of resolution required, the relaxations available, the individual-grant threshold and the prescribed register all change — confirm with a company secretary before the Board meeting.
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.