EMPLOYEE STOCK OWNERSHIP PLAN

Employee stock ownership plan is an employee benefit plan. This plan gives an ownership stake to employees in the company. There is a certain percentage of shares allocated by the employer to each eligible employee at no upfront cost. The basis on the distribution of shares can be an employee term of service or their pay scale, there can also be some other basis of allocation.

Till the employee retires or resigns from the company, the ESOP Is held in a trust unit for its growth and safety.

While creating an employee stock ownership plan the company needs to create trust together with it, through which it can contribute new shares or bye the existing stock. The contributions that are made to trust are tax-deductible but only up to certain limits.

There are many benefits of employee stock ownership plans. One of the many benefits is a tax benefit for employees. The employees need not pay taxes on the contributions, but they're only tags when they receive a distribution from the employee stock ownership plan after they resign or a tire or exit the company. So, the gains accumulated by the employee are passed as capital gains. Employee stock ownership plans help to create higher employee involvement and engagement. Because of this, get a port unity to influence decisions about the company's services and products. There is also a positive outcome for the company due to employee stock ownership plans. 8 increases annual nail growth and annual employment growth ensures the likelihood of company survival.

However, there are some drawbacks of employee stock ownership plan, like, Lack of diversification, it is dilutive, and it also limits Benefits to the newer employees.

Subsection 37 of Section 2 of Companies Act, 2013 defines employee stock option and it is to be read with section 63(1)(b) Of the act and rule 12 of the Companies rule 2014. There are many laws in which power is the issue of employee stock ownership plans. The laws are the Companies Act, 2013, foreign exchange management act, 1999, Income Tax Act 1961, Department of Public enterprises guidelines, ICDRregulations 2009, SEBI regulation 2014, and amendments.

It is considered to be requisite for taxation. The capital gain by employees will be tagged based on the period of holding. To calculate the games, the date of exercise and the date of sale is taken into consideration. Equity shares are considered as long-term capital under listed on recognizing Stock Exchange if there help for more than one year. If the shares are sold within a year then they will be considered short-term.

When employee stock ownership plans are established the company will need proper administration, This will include legal costs, valuation, trustees, and third-party administration. It is better to avoid an employee stock ownership plan if the company requires significant additional capital to carry out the business operation because then employee stock ownership plans will compete with requirements and it will create a management crisis.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.