Description

Consolidated regulations governing employee stock option schemes, stock purchase schemes, stock appreciation rights, general employee benefits, retirement benefits, and sweat equity shares for listed companies.

Summary

The Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, notified on August 13, 2021 and last amended on December 4, 2025, establishes the comprehensive regulatory framework for share-based employee benefit schemes and sweat equity issuances by listed companies. These regulations are issued under sections 11, 11A and 30 of the SEBI Act, 1992, read with sections 54 and 62 of the Companies Act, 2013.

Key Points

  • Applies to all listed companies offering employee stock option schemes (ESOP), employee stock purchase schemes (ESPS), stock appreciation rights (SAR), general employee benefits schemes, retirement benefit schemes, and sweat equity shares
  • Covers schemes that involve direct or indirect dealing in company securities for employee benefit
  • Applies when schemes are set up, funded, guaranteed, controlled or managed by the company or group companies
  • Preferential issue provisions under SEBI (ICDR) Regulations, 2018 do not apply except where specifically provided
  • Came into force on date of publication in Official Gazette (August 13, 2021)
  • Most recent amendment effective December 4, 2025

Regulatory Changes

The regulations consolidate the framework for six types of schemes:

  1. Employee Stock Option Schemes (ESOP) - Options granted to employees to purchase shares
  2. Employee Stock Purchase Schemes (ESPS) - Direct purchase programs for employees
  3. Stock Appreciation Rights (SAR) - Rights to receive appreciation between exercise/vesting date market price and SAR price
  4. General Employee Benefits Schemes - Broader benefit programs involving securities
  5. Retirement Benefit Schemes - Retirement-linked equity benefits
  6. Sweat Equity Shares - Equity issued for intellectual property or know-how contributions

The regulations establish that schemes are covered if they satisfy any one of three conditions: (a) set up by the company or group company, (b) funded or guaranteed by the company or group company, or (c) controlled or managed by the company or group company.

Compliance Requirements

Applicability:

  • All companies with equity shares listed on recognized stock exchanges in India
  • Companies issuing sweat equity shares or operating employee benefit schemes involving securities
  • Group companies setting up, funding, guaranteeing, controlling or managing such schemes

Key Definitions Established:

  • Appreciation: Difference between market price at exercise/vesting and SAR price
  • Associate company: As per section 2(6) of Companies Act, 2013
  • Control: As defined under SEBI (SAST) Regulations, 2011
  • Emergency: Situations requiring trust funds to meet specified obligations

Regulatory Powers: Exercised under SEBI Act sections 11, 11A and 30, and Companies Act sections 54 and 62, along with Companies (Share Capital and Debentures) Rules, 2014 (rules 8 and 12)

Important Dates

  • Original Notification: August 13, 2021
  • Effective Date: August 13, 2021 (date of Official Gazette publication)
  • Last Amendment: December 4, 2025
  • Document Version: Consolidated text as of December 4, 2025

Impact Assessment

Broad Market Impact: These regulations impact all listed companies utilizing equity-based compensation and employee benefit schemes. The framework facilitates smooth operation of employee benefit schemes while preventing manipulation, balancing employee welfare with investor protection.

Operational Impact:

  • Listed companies must ensure all employee benefit schemes comply with these regulations rather than only Companies Act provisions
  • Exemption from preferential issue requirements streamlines the process for issuing shares under compliant schemes
  • Trust structures used for employee benefits must meet regulatory criteria for setup, funding, and control
  • SAR schemes now have clear regulatory definition and framework

Compliance Burden: Companies must review existing schemes for compliance with the consolidated framework and implement any changes required by the December 4, 2025 amendments. The regulations provide clarity but require detailed disclosure and governance standards.

Strategic Implications: The comprehensive framework enables listed companies to design competitive employee compensation packages while maintaining regulatory compliance, supporting talent attraction and retention in Indian capital markets.

Impact Justification

Comprehensive regulatory framework governing all share-based employee benefit schemes for listed companies. Last amended December 4, 2025, making it current and mandatory for compliance by all listed entities offering such schemes.