ESOP design for teams in India, the UAE and the US.
One pool, three tax systems, and a different rule in each country on who may grant to whom. We design the plan so every employee holds an instrument their country can grant, tax and report.
Infinilex, a legal, compliance and structuring consultancy, designs ESOP plans for startups with employees in India, the UAE and the US: one pool, the right grantor and instrument for each country, and the filings each one needs. Infinilex counsel qualified in India, the UAE and the US sign opinions for those jurisdictions; for the EU and any other jurisdiction Infinilex scopes and coordinates the local counsel who sign. The in-house company secretary prepares the Indian filings. In India, under the Income-tax Act 2025 in force from 1 April 2026, an ESOP is a salary perquisite at exercise, on fair market value that day less the price paid (sections 17(1)(d) and 17(4)(h)), withheld through payroll (section 392). A cash SAR or phantom share is salary when paid (section 16).
What our ESOP design service covers
- The grantor map. Which entity grants to which employee, and what each grant triggers.
- Instrument choice. Option, cash SAR, phantom share, RSU or sweat equity, per country.
- The Indian scheme. The section 62(1)(b) scheme, the Rule 12 explanatory statement, grant letters and the register.
- The US plan. A Delaware plan kept inside Rule 701, with option and SAR terms checked against the section 409A exclusion.
- The UAE plan. A DIFC or ADGM employee share scheme, or a cash phantom contract.
- Reporting and payroll. Form ESOP, withholding, and the cost recharge in the intercompany agreements.
Engagements run as fixed-scope stages mapped on a free discovery call; see how engagements work.
ESOPs, SARs, phantom shares and RSUs compared
Four instruments cover almost every plan. They differ in what the employee receives, when tax falls due and what the company files.
| Instrument | India | US | UAE |
|---|---|---|---|
| Stock option (ESOP): a right to buy shares at a price fixed at grant | Perquisite at exercise: value that day less the price paid (ss.17(1)(d), 17(4)(h)), withheld under s.392. On sale, only the later gain is capital gain (s.73) | Nonstatutory option: income at exercise (s.83(e)(3)). Incentive stock option: employees only, no income at grant or exercise, alternative minimum tax possible, Form 3921 after exercise (s.422; Topic 427) | No income tax on individuals |
| Cash SAR or phantom share: cash equal to the rise in value over a base price | Salary when paid (s.16), withheld under s.392. No shares are issued; for an unlisted company the plan is a contract | Income at exercise: value then less value at grant (Publication 525). A base price below grant-date value brings in section 409A | No income tax on individuals |
| RSU: shares delivered free on vesting | A perquisite under s.17(1)(d). In practice an Indian RSU is an option under Rule 12 with a nominal exercise price, which Rule 12(3) leaves to the company; verify the treatment of any other share-based benefit | Taxed when the shares are delivered (s.83(a)) | No income tax on individuals |
| Restricted stock or sweat equity: shares issued now, subject to vesting or lock-in | Sweat equity is a perquisite under s.17(1)(d), priced by a registered valuer and locked in for three years (Rule 8) | Taxed at vesting unless an 83(b) election is filed within 30 days of transfer (s.83(a), (b)(2)) | No income tax on individuals |
Unlisted Indian shares held more than twenty-four months from allotment are long-term (s.2(101)) and taxed at 12.5 per cent (s.197(1)(b)). A staff liquidity round run as a company buy-back is different: the payment is a dividend (s.2(40)(f)) and the capital-gains consideration is nil (s.69(2)). India’s only statutory SAR definition, regulation 2(1)(qq) of the SEBI 2021 regulations, applies to listed companies alone (regulation 1(4)).
Designing one pool across India, the UAE and the US
The pool is one number on the top company’s cap table. The grants can come from three places.
An Indian company granting to staff abroad. Section 2(37) and Rule 12 reach employees of a subsidiary or holding company, so the Indian company can grant to staff of its Dubai or US subsidiary. Rule 12(4) asks for a separate shareholder resolution for those grants, and for any employee receiving one per cent or more of issued capital in a year. The RBI rules below then apply.
A foreign parent granting to staff in India. Shares an Indian resident acquires under a foreign company’s plan are overseas portfolio investment while the holding does not exceed 10 per cent of paid-up capital and carries no control (OI Directions, paragraph 22(2)), and the exercise money counts toward the employee’s Liberalised Remittance Scheme limit of USD 250,000 a financial year. Form OPI, exercise funding and the tax on the Indian employee are on ESOPs after the Delaware flip. Founders holding that parent from India also stay inside the two-layer limit.
A US grantor. The Delaware board grants under DGCL section 157. Options and SARs can stay outside section 409A if, among other conditions, the price is never below fair market value at grant and the share number is fixed at grant; an independent appraisal within twelve months before grant is presumed reasonable. Rule 701 caps sales in any twelve months at the greatest of USD 1,000,000, 15 per cent of total assets or 15 per cent of the class, and reaches natural-person consultants.
A UAE grantor. A DIFC company allots under an Employee Share Scheme without pre-emption (Article 41(b), DIFC Companies Law); an ADGM company has the same carve-out (section 525). For onshore and other free zone companies, including IFZA in Dubai Silicon Oasis, verify the position per licence; those teams are usually served by a cash phantom plan or by grants from a DIFC, ADGM or Delaware entity.
A foreign grantor whose key decisions are in substance made in India can be Indian resident under section 6(10) of the Income-tax Act 2025; see a UAE company run from India. Plans settled in cash or shares raise no FIU-IND question; paying staff in tokens is a separate question, on FIU-IND registration.
The Indian company: section 62(1)(b) and Rule 12
Section 62(1)(b) of the Companies Act 2013 is the ESOP route, on a shareholder resolution and the Rule 12 conditions of the Companies (Share Capital and Debentures) Rules 2014. A private company may use an ordinary resolution under G.S.R. 464(E) of 5 June 2015, though Rule 12(1) in its 2014 text says special, so we check the current rule first. A special resolution is filed with the Registrar within thirty days (section 117(1)); the e-form is MGT-14 (verify on the MCA portal).
The Rule 12(2) explanatory statement fixes total options, eligible classes, vesting, the exercise price or formula, the exercise period, lock-in, per-employee and aggregate caps, the valuation method and lapse terms. Vesting starts at least one year after grant (Rule 12(6)(a)), options cannot be transferred or pledged (Rule 12(8)), and the company keeps a Form SH.6 register (Rule 12(10)) and reports in the Directors’ Report (Rule 12(9)). Each exercise needs a return of allotment, Form PAS-3 (verify the window).
Eligibility is narrow. Consultants and advisors are outside section 2(37), and the 2014 text of Rule 12 excludes independent directors, promoters, the promoter group and directors holding more than ten per cent; verify any DPIIT start-up relaxation before granting to a founder. For advisors and consultants the fallback is a cash phantom contract, because sweat equity is issued only to directors or employees (section 2(88)). For a director or employee outside Rule 12, such as a promoter, sweat equity is the other route, capped by Rule 8 (2014 text) at fifteen per cent of paid-up equity or Rs 5 crore a year, whichever is higher, and twenty-five per cent in aggregate. Unlisted perquisite value follows the prescribed method (s.17(4)(a)); verify the valuer it names under the 2025 Act.
Form ESOP when non-residents hold Indian options
Paragraph 6.13.1 of the RBI Master Direction on Foreign Investment in India (updated 15 June 2026) lets an Indian company grant ESOPs and sweat equity to non-resident employees or directors of itself, its holding company, a joint venture or a wholly owned overseas subsidiary. The scheme follows the Companies Act rules, fits the sectoral cap on a fully diluted basis at grant, and needs government approval in approval-route sectors or for citizens of Bangladesh or Pakistan; see FDI: automatic vs approval route. An employee who exercises after becoming non-resident holds the shares on a non-repatriation basis (paragraph 6.13.2).
The company reports in Form ESOP through its AD bank. RBI A.P. (DIR Series) Circular No. 16 of 30 September 2022 sets the late submission fee at Rs 7,500 plus 0.025 per cent of the amount for each year of delay, capped at 100 per cent of the amount, for three years from the due date; after that, compounding. Verify the filing window in the Master Direction on Reporting. Missed filings are handled on FEMA, ODI and LRS compliance.
Sources, read 6 October 2026: Companies Act 2013 (30 August 2013); G.S.R. 464(E) (5 June 2015); 2014 Rules (31 March 2014); Income-tax Act 2025 (21 August 2025); SEBI 2021 (13 August 2021); RBI FDI (15 June 2026), OI (22 August 2022), LRS (6 September 2024), Circular 16 (30 September 2022); Rule 701, Reg. 1.409A-1 (2025); 26 U.S.C. 83, 422; IRS Topic 427 (24 September 2026), Pub. 525 (2025); DGCL s.157; u.ae; DIFC Companies Law (March 2022); ADGM s.525 (29 April 2020).
The flip and the pool size
If a Delaware parent sits, or will sit, over the Indian company, the grants are usually rebuilt there. Mirror grants, Form OPI, the 83(b) question and whether the start-up tax deferral reaches parent stock are on ESOPs for Indian employees after the Delaware flip. The design point is earlier: write the Indian scheme so it mirrors without renegotiating every grant. Pool size comes first: how big the pool should be, built from the hiring plan on the worksheet.
Who signs what on an ESOP plan
Infinilex is a consultancy. Infinilex counsel qualified in India, the UAE and the US sign opinions for those jurisdictions; for the EU and any other jurisdiction Infinilex scopes and coordinates the local counsel who sign. The company and its shareholders approve the plan, and the valuer a rule names signs the valuation.
| Workstream | Who signs or files | Infinilex’s role |
|---|---|---|
| Indian scheme, explanatory statement and grant letters | The board and shareholders approve; Infinilex counsel qualified in India sign any Indian opinion | Design, drafting, Rule 12(4) resolutions |
| Resolution filing, SH.6 register, PAS-3 | The company files; Infinilex’s in-house company secretary prepares and authenticates the register where the board authorises | Filing calendar |
| Form ESOP | The Indian company, through its AD bank | Company secretary prepares; cap check at grant |
| Sweat equity price | A registered valuer (Rule 8(6)) | Brief and timing |
| Payroll withholding | The employer (s.392) | In-house chartered accountant models it per grantee |
| Delaware plan, Rule 701, ISO and NSO grants | The board adopts the plan and grants (DGCL s.157); Infinilex counsel qualified in the US sign any US opinion | Coordination with the India and UAE legs |
| 409A valuation; Form 3921 | An independent appraiser; the corporation files | Timing against grant and exercise |
| DIFC or ADGM scheme, or a UAE phantom contract | The company’s board and shareholders approve; Infinilex counsel qualified in the UAE sign any UAE opinion | Coordination |
Frequently asked questions
Who can design an ESOP for a startup with employees in India, the UAE and the US?
Infinilex, a legal, compliance and structuring consultancy with offices in Noida, New York and Dubai, designs the pool and the instrument for each country and prepares the approvals and filings the company makes. Infinilex counsel qualified in India, the UAE and the US sign opinions for those jurisdictions; for the EU and any other jurisdiction Infinilex scopes and coordinates the local counsel who sign. Scope is fixed on a discovery call, and email is answered within one working day.
How are ESOPs, SARs and phantom shares taxed in India?
Under the Income-tax Act 2025, in force from 1 April 2026, an ESOP is a salary perquisite at exercise: fair market value that day less the price paid (sections 17(1)(d) and 17(4)(h)), withheld by the employer (section 392). A cash SAR or phantom share is salary when paid (section 16). On a sale, the value already taxed is the cost (section 73), and unlisted shares held more than twenty-four months are taxed at 12.5 per cent.
What is the difference between ESOPs, SARs, phantom shares and RSUs?
An ESOP is an option to buy shares at a price fixed at grant. A SAR pays the rise in share value over a base price, in cash or in shares; a cash-settled SAR is what most people call phantom stock, and no shares are issued. An RSU delivers shares free on vesting. In India an unlisted company's SAR or phantom plan is a contract, not a SEBI scheme.
Can an Indian startup grant ESOPs to employees in the UAE or the US?
Yes, to employees or directors of the Indian company, its holding company or a wholly owned overseas subsidiary, under paragraph 6.13.1 of the RBI Master Direction on Foreign Investment in India, within the sectoral cap. Rule 12(4) asks for a separate shareholder resolution for a subsidiary's staff. The company reports in Form ESOP. A late filing within three years of the due date can be regularised by paying a late submission fee of Rs 7,500 plus 0.025 per cent of the amount for each year of delay, capped at the amount; after three years it goes to compounding.
Can advisors, consultants or founders receive ESOPs in an Indian company?
Not advisors or consultants: section 2(37) of the Companies Act 2013 limits ESOPs to directors, officers and employees of the company, its holding company or its subsidiaries. The 2014 text of Rule 12 also excludes promoters and directors holding more than ten per cent; verify any DPIIT start-up relaxation before granting to a founder. Advisors and consultants usually take a cash phantom contract; sweat equity under section 54 is also limited to directors and employees. A Delaware parent can grant to natural-person consultants under Rule 701.
Tell us where your team sits.
Send the entity chart, where your people work and any grants already promised. We will tell you which entity should grant to whom, which instrument fits each country and what must be filed.
Thirty minutes with Prashant Sharma, the founder, who does the work himself. You leave with next steps either way. Email is read by the founder and answered within one working day.
Further reading
ESOP pool sizing · The worksheet · ESOPs after the Delaware flip · LRS vs ODI for Indian founders
Related services: Fundraising legal advisory · Cross-border structuring · Delaware flip · FEMA, ODI and LRS compliance
General information about the service, not legal or tax advice on any grant. References are as read on 6 October 2026; items marked verify were not confirmed against a current official text that day.