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EMPLOYEE STOCK OPTION PLANEMPLOYEE STOCK OPTION PLAN

Acc to sec 2(15 A) of the companies act1956Acc to sec 2(15 A) of the companies act1956

Means an option given to the whole timeMeans an option given to the whole time

directors ,officers and employees .an right todirectors ,officers and employees .an right to

purchase at a future date ,the securities offeredpurchase at a future date ,the securities offered

by the company at a predetermined priceby the company at a predetermined price

ESOP,S are granted to management and keyESOP,S are granted to management and keyemployees as a form of incentive compensationemployees as a form of incentive compensation

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EEmployee Stock Option Plan (ESOP), is a plan throughmployee Stock Option Plan (ESOP), is a plan throughwhich a company awards Stock Options to thewhich a company awards Stock Options to theemployees based on their performance. Under anemployees based on their performance. Under anESOP, the employees have right to buy the shares of theESOP, the employees have right to buy the shares of the

company on a predetermined date at a predeterminedcompany on a predetermined date at a predeterminedprice. The objective of ESOP is to motivate theprice. The objective of ESOP is to motivate theemployees to perform better and improve shareholders'employees to perform better and improve shareholders'value. Apart from giving financial gains to thevalue. Apart from giving financial gains to theemployees, ESOP also creates aemployees, ESOP also creates a sense of belongingsense of belonging

and ownership amongst the employees.and ownership amongst the employees.Different terms used in an ESOPDifferent terms used in an ESOP

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RIGHTISSUERIGHTISSUE

A public companyA public company

that wants to raisethat wants to raise

capital can opt for acapital can opt for a

Rights Issue.Rights Issue.

In a rights issue, existing shareholders have the

right to buy aspecified number of new shares

of the firm at a specified price within a specified

time.

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CHARECTERESTICSCHARECTERESTICS

RIGHT AVAILABLE TO EXISTING SHAREHOLDERS.RIGHT AVAILABLE TO EXISTING SHAREHOLDERS.

SHARE PRICE LESS THANTHE MARKRT PRICE,SHARE PRICE LESS THANTHE MARKRT PRICE,

RAISE ADDITIONALCAPITALRAISE ADDITIONALCAPITAL

CONTRAST OF IPOCONTRAST OF IPO

REDUCES DEBTTO EQUITYRATIOREDUCES DEBTTO EQUITYRATIO

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CONDITIONSCONDITIONS

ANYCOMPANYCANLOPTRIGHTISSUE IFANYCOMPANYCANLOPTRIGHTISSUE IF

have completed two years of incorporationhave completed two years of incorporation

and completed 1 yr. from first allotment .and completed 1 yr. from first allotment .

FIRSTTO EXISTING SHAREHOLDERS.FIRSTTO EXISTING SHAREHOLDERS.

ATLEAST 15 DAYS PRIORNOTICEATLEAST 15 DAYS PRIORNOTICE

NOT APPLICANLE TO A PRIVATE COMPANYNOT APPLICANLE TO A PRIVATE COMPANY

SHOULD CONTAINRIGHT OF RENUNUCIATIONSHOULD CONTAINRIGHT OF RENUNUCIATION

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REASONSREASONS

INFLATIONINFLATION

REPLACEMENT COSTREPLACEMENT COST

EXPANSION PROJECTSEXPANSION PROJECTS

IMPROVE CAPITAL STRUCTUREIMPROVE CAPITAL STRUCTURE

EXPANSION BY TAKE OVEREXPANSION BY TAKE OVER

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ADVANTAGESADVANTAGES

PRIVILAGE TO SHAREHOLDERSPRIVILAGE TO SHAREHOLDERS

INCREASE INGOODWILLINCREASE INGOODWILL

HELP TO FINANCE MANAGERSHELP TO FINANCE MANAGERS

LOWER PRICE OF SHARESLOWER PRICE OF SHARES

EASY SOURCE OF FUNDEASY SOURCE OF FUND

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DISADVANTAGESDISADVANTAGES

DILUTED VALUE OF SHARESDILUTED VALUE OF SHARES

LOW SHARE PRICELOW SHARE PRICE

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ADVANTAGESADVANTAGES

Right issue gives the existing shareholders anRight issue gives the existing shareholders an

opportunity to maintain their proopportunity to maintain their pro--rata share in therata share in the

earning and surplus of the company and the votingearning and surplus of the company and the voting

power as before.power as before.

The goodwill of the company increases in the eyes ofThe goodwill of the company increases in the eyes of

existing shareholders.existing shareholders.

The financial management is relived of the botherationThe financial management is relived of the botheration

of selling the sharesof selling the shares

To campaniesTo campanies

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ADVANTAGESADVANTAGES

Right issue gives the existing shareholders an opportunity toRight issue gives the existing shareholders an opportunity tomaintain their promaintain their pro--rata share in the earning and surplus of therata share in the earning and surplus of thecompany and the voting power as before.company and the voting power as before.

The goodwill of the company increases in the eyes of existingThe goodwill of the company increases in the eyes of existing

shareholders.shareholders.

The cost of issue of such shares will also be lower.The cost of issue of such shares will also be lower.

The financial management is relived of the botheration of selling theThe financial management is relived of the botheration of selling thesharesshares

If right shares are offered by the shareholders enthusiastically, itIf right shares are offered by the shareholders enthusiastically, itproves that financial position of the company is sufficiently good,proves that financial position of the company is sufficiently good,and the company can obtain more loans at lower rate of interest.and the company can obtain more loans at lower rate of interest.Related ArticlesRelated Articles