Issue or Transfer of Security by a Person Resident outside India) Regulations, 2000 - New Amendments

Issue or Transfer of Security by a Person Resident outside India) Regulations, 2000

New Amendments

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Fourth Amendment) Regulations, 2015)

In Regulation 2:

a. after clause (iie), the following new clause shall be added, namely:-

‘(iif) “employees’ stock option” means the option given to the directors, officers or employees of a company or of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price;’

 

b. after clause (x), the following new clause shall be added, namely :-

“(xa) “sweat equity shares” means such equity shares as issued by a company to its directors or employees at a discount or for consideration other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called;”

For the existing Regulation 8, the following shall be substituted, namely:

“(1) An Indian company may issue “employees’ stock option” and/or “sweat equity shares” to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, provided that :

a.   The scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013, as the case may be.

b.  The “employee’s stock option”/sweat equity shares issued to non-resident employees/directors under the applicable rules/regulations are in compliance with the sectoral cap applicable to the said company.

c.   Issue of “employee’s stock option”/sweat equity shares in a company where foreign investment is under the approval route shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.

d.  Issue of “employee’s stock option”/sweat equity shares under the applicable rules/regulations to an employee/director who is a citizen of Bangladesh/Pakistan shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.

(2) The Reserve Bank may require the company issuing “employees’ stock option” and/or “sweat equity shares” to submit such reports and at such frequency as it may consider necessary.

 

Ref Notification No. FEMA.344/2015 RBI- Dated June 11, 2015

 

What Changes have been effected after Amendment?

 

v  Through 11 June 2015 Amendment, the definition of “sweat equity and ESOP “have been inserted.

 

v Apart from ESOPs, an Indian Company now can issue Sweat Equity Shares to its directors / employees are not resident in India or who are resident outside India.

 

v Now , non-resident employees and directors of holding company abroad can receive options / shares issued by the Indian subsidiary.

 

v  The non-resident directors of Wholly owned subsidy or joint venture can receive now ESOP / Sweat equity shares from Indian Company.

 

v Even unlisted companies can issue now ESOP shares within the definition of Companies Act 2013 to its non-resident directors / employees.

 

v The new amendment is silent about the mode of offer of ESOP or Sweat Equity either through direct allotment or through a trust.

 

v The new amendment has removed the threshold limit of 5% of the paid-up capital of issuing company.

 

v However , Indian company has to receive approval of FIPB if the issue of shares/options under a scheme where company has to issue shares with the FIPB approval.

 

v If sectoral cap is applicable to the Issuing Company, then , the Company has to issue ESOP / Sweat equity within its sectoral gap limit.

 

v Prior Approval from FIPB is required if ESOP or Sweat Equity is issued to citizen of Pakistan / Bangladesh.

 

v The issuing company has to obtain a certificate from SEBI registered Merchant Banker or Chartered Accountant as the case may be as to the manner of arriving at the issue prices of the shares to the resident outside India.

 

v The Issuing Company has to report to RBI within 30 days of issue the details of the issue in a newly prescribed form.