Has the lure of stock options been at a huge cost for employees? All that glitters is certainly not gold and there is no better example than the potential realisation on employee equity. Some of us may know the story of Raghu Varma that YourStory published last year. Raghu worked for a startup for a few […]. Raghu worked for a startup for a few years at a CXO role, saw the company through a few rounds of funding and then moved out.

Gigaom | 5 Mistakes You Can’t Afford to Make with Stock Options

He held on to these as he thought the valuation of the company would only go up and he wanted to take advantage of this at that time.

He went to his old startup a couple of years after he quit and a few months before his options were to expire. The options, had Mr.

Varma consulted his lawyer at the time of resignation, would have been to either pay an exorbitant rate to purchase the shares or lose his vested options. Further, had he purchased the shares, he may have had to pay a tax on the capital gains made from such purchase. This would have been a heavy price in the garb of salaries.

What then could have been ideal alternatives for Raghu? This article will not delve into the details of the basics of ESOPs as these have been well documented. However, there are three basic terms to be acquainted with while dealing with the concept of employee stock options: All options not vested in the event of a resignation or termination shall expire unless the board or the compensation committee provides that the options may be vested in an accelerated manner.

The new Companies Act states that the exercising of vested stock options shall be subject to terms and conditions provided in the employee stock option scheme. The employee stock option scheme is the bible that is approved through an ordinary or special resolution in the case of a private limited or public company respectively.

This provides the detailed terms and conditions relating to the stock options, like the eligibility for stock options, general conditions upon which they terminate, the conditions relating to granting, vesting and exercising, and lays out the exercise period in pre-funding and post funding or pre-listing and post-listing scenarios.

Silicon Valley seems to be moving in the direction of offering flexible options to the employee who resigns. Some companies are providing an option to the ex-employee to sell a certain percentage of his stock each year for liquidity or by offering a lengthy period of 10 years to exercise the vested options, as in the case of Pinterest. This trend is yet to emerge in India.

Some of my industry colleagues would affirm this and quote the availability of a clean read: There are no laws in India that prohibit a lengthy exercising option and therefore solely based on the commercials. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.

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Harini Subramani works with the corporate commercial team at a law firm in India. She also co-authors a blog www.

Prior to joining the legal profession, she was a journalist and wrote for the Mint, and the Wall Street Journal, among others, on mergers and acquisitions. Are you creating your own definition of success? News SocialStory HerStory Resources Research Events. Investors YS TV YS Profiles In Depth Team YS Testimonials. YourStory brings to you stories of entreprenuers and small business from all over India read more.

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