Team, Co-founders & Legal

How do I set up an ESOP pool and grant equity to my early employees legally?

A starting point

Create the option pool at or before your first priced round, typically 10 to 15% of the cap table, because investors will ask you to carve it out anyway. In an Indian Pvt Ltd this means a board and shareholder-approved ESOP scheme, a pool of options, and grant letters with vesting; note that ESOPs are taxed as perquisite at exercise, a real pain point for employees in private companies, so understand the timing before you promise anything. In a Delaware C-corp it's a board-approved plan with standard ISO/NSO grants. Don't hand out 'equity' by verbal promise: it isn't real until it's documented and board-approved.

Go deeper

Hand-picked from around the web, each with a note on why it earns your time.

3 resources 3 link-checked

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📄 Article
✓ Link checked India Free Intermediate

Why we picked it This is the exact playbook for a Pvt Ltd founder: the eight sequential approvals in order, from checking your AoA permits ESOPs, to the board resolution, the 21-day shareholder notice, the ordinary-resolution vote, filing MGT-14 within 30 days, issuing grant letters, and maintaining the SH-6 register. It also lists the 15 clauses your scheme document must carry (vesting, separation treatment, clawback), so nothing gets skipped in due diligence.

ESOP Scheme in India: Definition, Structure, and Filing Guide

From EquityList by EquityList 18 min read

  • Your ESOP is not real until the board approves the scheme, shareholders pass the resolution, and you file Form MGT-14 with the RoC within 30 days
  • A grant only exists once a signed grant letter states the option count, exercise price, vesting schedule, and expiry; verbal promises carry zero legal weight
  • You must maintain a Register of Employee Stock Options in Form SH-6, and missing it puts the company in regulatory default
Open equitylist.co →
📄 Article
✓ Link checked India Free Intermediate

Why we picked it Once you have negotiated the pool size, this is the guide that stops the pool from becoming a tax trap for the very employees it rewards. It walks the full Indian lifecycle (no tax at grant or vesting, perquisite tax at exercise on the FMV-minus-exercise-price spread, capital gains at sale) and explains the DPIIT deferral that lets recognised startups push the exercise-stage perquisite tax out (48 months pre-April 2026, 60 months under the new regime), plus the Category I merchant banker FMV valuation you actually need.

ESOP Taxation in India: Complete Guide for Founders and Startups

From Treelife by Treelife 25 min read

  • ESOPs are taxed twice in India: as a salary perquisite at exercise (on the FMV minus exercise price spread) and again as capital gains at sale, with FMV at exercise becoming the cost base.
  • A low exercise price widens the taxable spread at exercise, so the exercise price is a deliberate design lever, not an afterthought.
  • DPIIT-recognised startups can defer the exercise-stage perquisite tax (up to 48 or 60 months depending on the regime), which is the single biggest lever for making the pool actually valuable to employees.
Open treelife.in →
📄 Article
✓ Link checked Free Intermediate

Why we picked it Founders always ask two questions: how big should the pool be, and how much does one hire get. This answers both with hard numbers instead of vibes: a seed pool of roughly 10 to 15% of fully diluted equity, and a per-role grant table (senior engineer around 1.0%, mid-level 0.45%, junior 0.15%) so you benchmark each offer by seniority instead of guessing.

Rewarding Talent: Option Grant Allocation Considerations and Benchmarks

From Index Ventures by Index Ventures 15 min read

  • A seed-stage option pool typically runs 10 to 15% of fully diluted equity, which is the same carve-out investors ask you to create at a priced round
  • Individual grants scale by role and seniority: senior engineers land near 1.0% of FDE, mid-level around 0.45%, juniors near 0.15%
  • A typical seed team of ten adds up to roughly 5% of the fully diluted equity in grants, a useful sanity check on your total pool
Open indexventures.com →

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