12 August 2021
SEBI has released a discussion paper seeking public comments on the review of two regulations, i.e., the SEBI (Share Based Employee Benefits) Regulations, 2014 (“SBEB Regulations”) and the SEBI (Issue of Sweat Equity) Regulations, 2002 (“Sweat Equity Regulations”). The discussion paper has been released by SEBI, pursuant to a report submitted by an expert group constituted for the review of these regulations
Please see below a few key recommendations of the expert group and under the discussion paper:
(a) The discussion paper has analysed the definition of employees under the SBEB Regulations and recommended that companies be given the flexibility to determine the persons that may be categorized as “employees”. Further, the discussion paper has also recommended an amendment in the definition of the term ‘employees’, and to delete the word “permanent” from the definition, keeping in mind the employment practices of engaging nonpermanent employees. Pursuant to this proposed amendment, non-permanent employees as well as nonexecutive directors may also be considered eligible to receive share based employee benefits under the SBEB Regulations.
(b) The discussion paper also recommends that the purposes for which sweat equity shares or employee stock option plans (“ESOPs”) may be issued should be listed out in the SBEB Regulations and the Sweat Equity Regulations. Further, the maximum limit on such issuances should also be provided in the regulations.
(c) An ESOP scheme can currently be implemented by a company under the trust route or the direct route. The discussion paper has recommended that flexibility may be given to companies to switch from a direct route to a trust route or vice versa, even after the ESOP plan has been approved by the shareholders of the company. Provided however, that the switch from one route to another must be approved by a special resolution of the shareholders and must not be prejudicial to the interests of the employees.
(d) The discussion paper also recommended that the lock-in period and the pricing formula for the issuance of sweat equity shares to employees of a company must be brought in line with the requirements under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
(e) The discussion paper has also recommended that the SBEB Regulations and the Sweat Equity Regulations be combined into a single set of regulations and has recommended a draft of the combined regulations titled SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.
Please click here to read the SEBI discussion paper.
For further information, please contact:
Souvik Ganguly, Partner, Acuity Law
al@acuitylaw.co.in
