ESOP scheme document - not a template

• Drafted for your specific cap table, vesting structure, and employee roles.
• Covers: eligibility, pool size, vesting schedule, exercise price, exercise window, termination clauses, and transfer restrictions.

Without Ollvy: Generic template from the internet - missing cliff, bad on termination, silent on tax

With Ollvy: Custom scheme reflecting your cap table, roles, and funding stage

Board resolution + shareholder special resolution

• Section 62(1)(b) requires a special resolution (75% majority) before any ESOP can be granted.
• Ollvy CS drafts both resolutions, handles notice period (21 days for postal ballot or shorter for written consent), and files with MCA if required.

Without Ollvy: Missed shareholder approval - entire ESOP scheme is void, discovered at due diligence

With Ollvy: Both resolutions passed and documented before any grants are made

Grant letter templates for each role

• Individual grant letters specifying: number of options, exercise price, vesting start date, vesting schedule, cliff period, and exercise window after vesting.
• One template per role category (employee, advisor, consultant).

Without Ollvy: Verbal promise of equity - no legal standing, disputes at exit

With Ollvy: Signed grant letters with specific terms for each person

Vesting schedule with cliff

• Standard 4-year vesting with 1-year cliff, or custom schedule based on your preference.
• Monthly or quarterly vesting after cliff.
• Acceleration clauses for acquisition or IPO if needed.

Without Ollvy: No cliff - employee leaves after 3 months with 25% of their options

With Ollvy: 1-year cliff protects you. Monthly vesting after that rewards loyalty.

FMV valuation note

• Fair Market Value of shares documented at the time of grant.
• Basis for exercise price (at FMV, at discount, or at nominal value).
• Required for tax computation when employee exercises options (Section 17(2)(vi)).

Without Ollvy: No valuation record - tax officer disputes the exercise price years later

With Ollvy: FMV documented at grant date. Clean record for future tax events.

Employee tax implications summary

• One-page summary explaining when tax applies (at exercise, not at grant), how perquisite value is calculated (FMV at exercise minus exercise price), and capital gains treatment on eventual sale.
• Given to each employee alongside their grant letter.

Without Ollvy: Employee blindsided by tax bill at exercise - blames the company

With Ollvy: Employee understands the tax timeline before signing the grant letter

Shareholder resolution not passed before granting

• Section 62(1)(b) of the Companies Act requires a special resolution (75% majority) before any ESOP can be granted.
• Granting options without this resolution makes the entire scheme void.
• Investors catch this during due diligence - it delays funding rounds by 4-8 weeks while you redo everything.

No FMV record at grant date

• The Income Tax Act taxes ESOPs as a perquisite at exercise (Section 17(2)(vi)).
• The taxable amount = FMV at exercise minus exercise price.
• If you have no FMV record from the grant date, the tax officer can dispute your exercise price.
• Ollvy documents FMV at the time of each grant.

Vesting terms not in writing

• Verbal equity promises are unenforceable.
• Without signed grant letters specifying vesting schedule, cliff, and exercise window, an employee who leaves can claim they were promised more.
• This surfaces at the worst time - during a funding round or an exit.

ESOP pool too small or too large

• Too small: you run out of options before your Series A and need shareholder approval again to expand the pool.
• Too large: investors see unnecessary dilution.
• Typical ESOP pool: 10-15% pre-Series A.
• Ollvy reviews your hiring plan and funding timeline before recommending pool size.

What is an ESOP and why does my startup need one?

An ESOP (Employee Stock Option Plan) gives employees the right to buy shares in your company at a fixed price after a vesting period. It is the standard way startups attract and retain talent without burning cash on salaries. Every serious investor expects a formal ESOP scheme before funding. Without one, equity promises are legally unenforceable.

How many shares should I put in the ESOP pool?

10-15% of total equity pre-Series A is standard. If you are pre-revenue and hiring a technical co-founder equivalent, 15% gives you room. If you have a full team already, 10% is enough for future hires. Ollvy reviews your cap table and hiring plan before recommending the pool size.

What approvals are needed to set up an ESOP?

Two approvals. First, a board resolution approving the ESOP scheme. Second, a special resolution passed by shareholders with 75% majority (Section 62(1)(b) of the Companies Act). Ollvy CS handles both - drafts the resolutions, manages the notice period, and gets them signed.

What is a vesting schedule and what is a cliff?

Vesting is the timeline over which an employee earns their options. Standard is 4 years. A cliff is a minimum period before any options vest - typically 1 year. If the employee leaves before the cliff, they get nothing. After the cliff, options vest monthly or quarterly. This protects you from early departures.

When do employees pay tax on ESOPs?

Tax applies at two points. First, when the employee exercises the option (buys the shares): the difference between FMV at exercise and the exercise price is taxed as a perquisite under Section 17(2)(vi) - added to their salary income for that year. Second, when they sell the shares: capital gains tax applies on the difference between sale price and FMV at exercise. No tax at grant or during vesting.

What is FMV and why does it matter for ESOPs?

Fair Market Value is the assessed value of one share at a given date. For unlisted companies, FMV is determined by a registered valuer using DCF or NAV method. FMV matters because it determines: (1) the exercise price you offer, (2) the taxable perquisite when the employee exercises, and (3) the capital gains base when they sell. Ollvy provides an FMV valuation note at the time of grant.

What documents do I need to provide?

Certificate of Incorporation, current shareholding pattern (Form MGT-7 or share register extract), Articles of Association, and a list of employees/advisors who will receive grants with their roles and proposed option counts. If you do not have a cap table, Ollvy builds one from your incorporation documents.

What happens after the ESOP scheme is set up?

You issue grant letters to each employee. They sign and return. Options vest per the schedule. When an employee wants to exercise (buy the shares), you process the exercise at the exercise price, allot shares, file PAS-3 with MCA, and update the share register. Ollvy can handle exercise processing as a separate engagement when the time comes.