Equity & ESOP

RSU Plan Document

India has no separate statutory framework for restricted stock units. In an unlisted Indian company an RSU is almost always implemented as an option with a nominal exercise price, granted under the employee stock option framework, so that the company law route is one that actually exists. This plan is drafted on that basis — read the notes before adopting it.

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Restricted Stock Unit Plan

[COMPANY NAME] Restricted Stock Unit Plan [YEAR]

Item	Detail
Company	[COMPANY NAME], CIN [CIN]
Name of the plan	[COMPANY NAME] Restricted Stock Unit Plan [YEAR]
Legal form of the award	An option to subscribe for one equity share at an exercise price equal to the face value of ₹ [FACE VALUE], granted under the employee stock option framework
Board approval	[DATE]
Members’ approval	[DATE]
Units authorised	[NUMBER], being [PERCENTAGE] per cent on a fully diluted basis
Relationship to the option scheme	Units are drawn from the pool authorised under the [COMPANY NAME] Employee Stock Option Scheme [YEAR], or from a separate pool authorised for this Plan — specify which
Administered by	The Board [, acting through the Compensation Committee]

1. Purpose and Nature of an RSU

1.1The purpose of this Plan is to reward and retain employees by granting them a right to receive equity shares of the Company, subject to vesting and to the conditions set out below.

1.2A "Restricted Stock Unit" or "Unit" granted under this Plan is a right, conditional on vesting, to subscribe for one equity share of the Company at an exercise price equal to the face value of that share. A Unit is not itself a share and confers no rights of a shareholder until the corresponding share is allotted.

1.3Units are granted, vest and are settled under the employee stock option framework of the Companies Act, 2013 and the rules made under it, and every requirement applicable to employee stock options applies to Units, including the definition of an eligible employee, the minimum period between grant and vesting, the prohibition on transfer, and the requirement to maintain the prescribed register.

1.4Terms defined in the [COMPANY NAME] Employee Stock Option Scheme [YEAR] have the same meaning in this Plan unless otherwise stated. Where this Plan and that Scheme conflict, that Scheme prevails.

2. Eligibility

2.1Units may be granted only to an Employee as defined in the Scheme, being a permanent employee of the Company or of its subsidiary, holding or associate company, or a director other than an independent director, and excluding a promoter, a member of the promoter group, and a director holding more than the prescribed percentage of the equity shares, [save to the extent the Company, as a recognised startup, is relieved from those exclusions for the period permitted].

2.2No Employee has a right to a Grant, and a Grant in one year creates no entitlement to a Grant in any subsequent year.

3. Grant

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6 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 7 pages.

Notes for use

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.

There is no separate RSU law in India

The term is imported from jurisdictions where a restricted stock unit is a distinct instrument settled by delivering shares for no payment. Indian company law has no equivalent, and shares cannot be issued for less than face value. The workable structure is therefore an option with an exercise price equal to face value, granted under the employee stock option framework, which is what this Plan does. A plan drafted as though shares will simply be delivered on vesting cannot be implemented.

Every option requirement applies

Because Units are options in law, the definition of an eligible employee applies, the minimum one-year period between grant and vesting applies, the prohibition on transfer applies, the prescribed register applies, and the members’ approval requirement applies. Companies that treat an RSU plan as something lighter than an option scheme are usually wrong on all five.

The tax position is worse, not better, at exercise

Because the exercise price is the face value, the perquisite on exercise is close to the entire value of the share. The employee pays almost nothing to exercise and a great deal in tax. This is the opposite of the intuition most employees bring from other jurisdictions, where RSUs feel free. Annexure A exists to make the trade-off visible, and it should be shown to employees at grant.

Manage the settlement window deliberately

Because exercise triggers a large tax charge with no liquidity, an open multi-year settlement window invites employees to exercise at the worst possible moment. Many companies open the window only on vesting dates and on liquidity events, which aligns the tax charge with the ability to pay it. Clause 5.2 offers both; choose one and say so plainly in the grant letter.

Cash settlement is a different animal

Settling in cash avoids the illiquidity problem and the register-of-members problem, but it is a salary payment, it hits the profit and loss account, and it needs funding. It also may not be available under the option framework in the way a company assumes. Take advice before including Clause 5.5, and delete it if cash settlement is not genuinely intended.

Fewer units, less dilution, same value

Because each Unit delivers close to the full share value rather than the increase in value, far fewer Units are needed to deliver a given amount. That is the principal attraction for a later-stage company managing its pool. Model the pool consumption both ways before choosing.

Do not run a shadow plan

Where the Company already has an option scheme with an approved pool, the cleanest route is to grant Units out of that pool under that scheme, using a face-value exercise price, rather than adopting a separate plan with a separate pool. Two pools tracked separately is a reconciliation problem waiting to happen. Clause 1.4 and the grant particulars are drafted to allow either; prefer the single pool.

Performance conditions must be measurable

Clause 4.3 requires objective conditions, a measurement period, the data source, and the proportion vesting at threshold, target and maximum. Performance Units drafted with a discretionary assessment produce disputes at exactly the moment the employee is leaving.

Deed of adherence before allotment

Settlement creates a new shareholder. Without a deed of adherence the Company acquires a minority holder not bound by the transfer restrictions or the drag in its investor documents. Make it a condition of allotment, not a follow-up.

Explain it once, properly, at grant

Employees who have held RSUs elsewhere will expect shares to appear automatically on vesting with tax withheld from the delivery. Under this Plan they must actively exercise, pay the face value, and fund a tax charge. Set that expectation in the grant letter, using Annexure A, rather than at the first vesting date.

Current as of

Reflects Indian law current as of {{DATE OF USE}}. The employee stock option framework, the startup relaxations and the tax treatment of the perquisite all change — have this Plan reviewed by a company secretary and a tax adviser before adoption, and confirm that the structure remains the appropriate route.

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.