The Securities and Exchange Board of India vide its notification dated 13th August 2021 has published the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 which shall be applicable to employees stock option schemes, purchase schemes, stock appreciation rights schemes, general employee benefits schemes, sweat equity scheme etc.
The provisions pertaining to preferential issues as specified in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 shall not be applicable in case of a company issuing new shares in pursuance and compliance of these regulations except wherever specifically provided for in these regulations.
Key Highlights from the regulation:
Under this regulation, a company may implement a scheme either directly or by setting up an irrevocable trust(s):
Provided that if the scheme is to be implemented through a trust, the same has to be decided upfront at the time of taking approval of the shareholders for setting up the scheme(s):
Provided further that if prevailing circumstances so warrant, the company may change the mode of implementation of the scheme subject to the condition that a fresh approval of the shareholders by a special resolution is obtained prior to implementing such a change and that such a change is not prejudicial to the interests of the employees: Provided further that if the scheme(s) involves secondary acquisition or gift or both, then it shall be mandatory for the company to implement such scheme(s) through a trust.
An employee shall be eligible to participate in the schemes of the company as determined by the compensation committee.
Further, a company shall constitute a compensation committee for administration and superintendence of the schemes:
Provided that where the scheme is being implemented through a trust the compensation committee shall delegate the administration of such scheme(s) to the trust.
The compensation committee shall frame suitable policies and procedures to ensure that there is no violation of securities laws including the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003, as amended from time to time, by the trust, the company and its employees, as may be applicable.
In case of winding up of the schemes being implemented by a company, the excess monies or shares remaining with the trust after meeting all the obligations, if any, shall be utilised for repayment of loan or by way of distribution to employees or subject to approval of the shareholders, be transferred to another scheme under these regulations, as recommended by the compensation committee.
