ESOP Grant Letter Format For Indian Companies

What is an ESOP grant letter? 

An ESOP grant letter is an official document that confirms the stock option award to an employee under the company’s ESOP scheme. 

It details the number of options granted, the exercise (strike) price, the vesting schedule, and any applicable terms or conditions. Signed by the employee and an authorized company representative, it legally formalizes the employee's participation once the board approves the grant.

Note: Without a signed employee stock option letter in India, no legal entitlement to stock options exists, even if options were verbally promised.

Why the ESOP grant letter matters: The legal framework in India

In India, the legal basis for issuing ESOPs starts with Section 62(1)(b) of the Companies Act, 2013. It permits companies with share capital to offer stock options to employees, subject to shareholder approval via a special resolution.

For unlisted companies (both private and public), the detailed conditions for ESOPs (such as vesting timelines, employee eligibility, and board/shareholder approvals) are outlined in Rule 12 from the Companies (Share Capital and Debentures) Rules, 2014.

On the other hand, listed companies must comply with the SEBI (Share-Based Employee Benefits and Sweat Equity) Regulations, 2021, which provide separate guidance on disclosures, pricing, and compliance.

ESOP grant letters must align with these frameworks to ensure enforceability and compliance with relevant regulations.

Sample ESOP grant letter format

This is an editable ESOP grant letter format tailored for Indian companies. You can make a copy and customize it to fit your company’s equity plan.

Set clear expectations from day one. Download the ESOP Grant Letter Format from here.

Disclaimer: This sample ESOP grant letter is for informational purposes only and does not constitute legal, tax, or financial advice. Please consult your legal or compliance team to ensure alignment with your company’s specific policies and regulatory obligations.

What to include in an ESOP grant letter?

A well-drafted ESOP grant letter should have these elements for legal clarity and employee understanding.

1. Company and employee details

Add the legal name and address of the company. Then, include the employee’s full name, designation, and employee ID (if applicable) to avoid any identification issues during future transactions. 

2. Grant information

Mention the number of options being granted and the specific ESOP plan under which the grant is made (if your company has more than one). Also note the grant date, which marks the start of the vesting period. 

3. Vesting schedule and cliff

Clearly outline the vesting structure:

• The total vesting period (e.g., 4 years)
• The cliff period (e.g., 1 year of continuous employment before any options vest)
• The vesting frequency thereafter (monthly, quarterly, etc.)
• Any performance-based or milestone-based conditions that must be met

4. Exercise window

Mention the time frame within which the employee can exercise vested options — during employment and after separation (it can range from 90 days to as long as 10 years). Specify separate terms in case of termination, death, or disability.

5. Termination, exit, and buyback terms

Explain what happens to vested and unvested options during voluntary resignation, termination for cause, retirement, or death. You can include:

• Buyback rights or company discretion to repurchase shares
• Lock-in periods or resale restrictions
• Any clauses related to Right of First Refusal (ROFR) or drag-along/tag-along rights

6. Change of control clauses

Define how options get treated during mergers, acquisitions, or other corporate restructuring events. Specify whether options accelerate, convert to acquirer stock, or get cashed out at predetermined valuations.

7. Taxation note

Mention that employees may have tax obligations when they exercise their options or sell the resulting shares.

8. Legal and administrative clauses

‍Add legal clauses to let employees know their rights and restrictions, like:

• Non-transferability of options, except in cases like death or incapacity
• Resale restrictions on shares exercised, especially for private/pre-IPO companies
• No shareholder rights until options are exercised and shares allotted
• Confidentiality of grant terms, with limited exceptions
• Governing law (Indian) and jurisdiction (e.g., Bengaluru, Karnataka) for disputes 

9. Other miscellaneous provisions

Any additional clauses such as:

• Clarification that a complete copy of the plan is being shared with the employee
• The non-binding nature of any liquidity expectations unless explicitly stated
• The company reserves the right to interpret or modify certain operational aspects under board-approved policies

10. Acceptance

Include a section for the employee to sign and date the grant letter as acknowledgment and acceptance of the terms.

ESOP grant letter issuance simplified with EquityList

Manual grant processes break down as your team grows. Version control issues, missed approvals, and scattered records can quickly turn ESOPs into a compliance nightmare.

That’s where EquityList comes in, making it easy to issue and manage ESOP grants at scale.

Check EquityList to:

• Upload grant data in bulk across multiple ESOP plans
• Auto-generate and customize grant letters with your branding
• Collect e-signatures from both employees and authorized signatories
• Keep a centralized audit trail for compliance and investor transparency
• Track everything from grants to vesting and exercises, all in one platform

Join EquityList’s 450+ customers. Our users love the express migration from other tools!

FAQs on ESOP grant letter in India

1. Is an ESOP grant letter mandatory in India?

Yes. Indian company law (governed by the Companies Act, 2013) mandates board and shareholder approvals for ESOPs. But the grant letter creates a binding agreement between the company and the employee. It’s important for legal clarity and future dispute resolution.

2. How is an ESOP grant letter different from an ESOP plan document?

The ESOP plan document defines the overall rules and eligibility criteria for all participants. The grant letter, on the other hand, is issued to an individual employee and captures their specific grant details under that plan.

3. Can I customize ESOP grant letters for different employees?

Yes. Companies can customize grant letters for senior employees, advisors, or international hires, while the core terms stay the same. Equity management tools like EquityList allow for efficient customization and bulk issuance.