Points to Keep in Mind if Trust Route is Adopted for ESOP

 Share Acquisition Options:

• The trust route allows for both the use of existing shares and the issuance of new shares.

Secondary Market Acquisition Limits:

• When acquiring shares from the secondary market, the acquisition limit for each financial year is 2% of the paid-up equity capital.
• The overall acquisition limit is 5% of the paid-up equity capital at any point in time.

Direct Acquisition from the Company:

• If the trust acquires shares directly from the company, there is no acquisition limit.
• Shares issued to the trust should be shown under the non-promoter, non-public category in the shareholding pattern.

Utilization of Surplus Shares:

• If the scheme is completed and the trust still holds surplus shares, these shares may be used for another scheme with shareholder approval, or sold, with the proceeds utilized according to the trust deed.

Loan Provisions Under Section 67:

• Section 67 allows a company to provide loans to a trust for the purpose of purchasing its own shares if these shares are for an ESOP.

Loan Repayment from Secondary Market Purchases:

• If the trust takes a loan from the company to buy shares from the secondary market, the loan is repaid from the proceeds received by the trust as the exercise price paid by the employees.

Voting Rights:

• Shares acquired by the trust are categorized under the non-promoter, non-public category in the shareholding pattern.
• Trustees do not have the power to vote on behalf of the employees for the shares held by the trust.