Managing equity and ESOPs through an Indian company restructure

Summary

• Keep issued shares and employee options in separate dated records before modelling a restructure.
• The transaction documents determine proposed changes; a merger does not convert every option automatically.
• Show the current record, proposed treatment and approval status for each affected holder or grant.
• Keep unresolved terms visible until the applicable scheme, grant and corporate approvals settle them.

For an Indian unlisted company, start with the transaction route and its draft documents, then reconcile each share and option entry to the treatment actually proposed.

A CFO needs a dated current record alongside the terms proposed in the transaction papers. Put the same cut-off date on the share and option views before updating a cap table or explaining a possible result to holders.

Different transaction routes require different equity reviews

A merger or division scheme under section 232 includes proposed terms and a directors' report on the effect on shareholder classes; an asset sale calls for a different document review.

Start with the route named in the draft papers. Use it to choose the documents to compare, then keep open any outcome that the papers do not settle.

Freeze share and option records at one date

Rule 12 requires an employee stock option register in Form SH-6; an unexercised option does not give its holder shareholder rights before shares are issued.

Use one cut-off date for both working records. Preserve the issue or grant source beside each entry so that the proposed transaction view can be compared with what exists now.

Keep reserved or contingent amounts in a separate view. Mark a missing source or conflicting quantity as unresolved instead of placing it in issued ownership.

Map each proposed change before changing the cap table

Rule 12 addresses replacement grants after a merger or amalgamation when the resulting company grants options in place of earlier options; it does not itself set a swap ratio or convert every grant.

Keep a proposed-result model separate from the issued-share record until the applicable terms and corporate actions support each change.

For the employee-facing question, see the employee view of acquisition outcomes.

Record approvals and unresolved terms separately

Under Rule 12(5), a company may vary unexercised ESOP scheme terms by special resolution if the change is not prejudicial to option holders; the notice must describe the variation, rationale and beneficiaries.

For a section 232 scheme, the draft terms and directors' report are separate evidence from an expert valuation report, which the section lists if there is one.

Keep a dated exception log for each entry that cannot yet be reconciled:

• the unresolved term;
• the source documents and their dates;
• the owner of the open item;
• the next approval or decision; and
• the current status: proposed, approved or open.

An approval record and a draft proposal should remain visibly separate in the working file. Update the status when the responsible team has the supporting document.

Tell holders what is proposed and what is approved

Label each holder message with the document date and whether the treatment is proposed or approved; identify any grant whose result is still unresolved.

Use two labels in the message record:

• Proposed: the dated draft treatment and any unresolved grant entry.
• Approved: the dated approval document and the resulting treatment, with any remaining open item identified.

A holder can then see which version is being discussed. Keep a later change linked to the document that changed the status.

What to do next

1. Date the share ledger and option ledger at the same cut-off.
2. Mark the proposed or approved treatment for each affected entry in a separate result view.
3. Send unresolved entries and their source documents to the company secretary and transaction team for the next decision.

FAQs

What if the draft merger scheme says nothing about unvested grants?

Treat silence as an open item. Put the affected grants, plan terms and draft scheme clause in the exception log, then obtain the transaction team's decision before describing a new entitlement to employees.

Can service under an old grant count towards a replacement option's vesting period?

Rule 12(6)(a) credits time held under the earlier option towards the minimum vesting period only when a company grants an option in lieu of the same person's option in a company merged or amalgamated with it. Check the actual grant and scheme terms for everything else.

How do I show an exercised option when allotment is still unresolved?

Show the exercise event and any pending allotment separately. Rule 12 says an option holder gains shareholder rights only when shares are issued; use the resulting issue and member records to update issued ownership.

Does an asset sale move the seller's ESOP grants to the buyer?

No automatic transfer follows from calling a transaction an asset sale. Review the seller's plan, each grant and the sale documents for the proposed treatment, then record any buyer grant as a separate proposal until authorised.

Does every restructuring need a new ESOP valuation report?

No universal fresh ESOP valuation follows from the word restructuring. Identify the transaction, instrument and purpose first; section 232 refers to an expert valuation report for a scheme only if there is one.

When should proposed replacement grants enter the issued-share cap table?

Keep proposed replacement grants in the scenario view. Record an actual grant in the option ledger and any resulting issued shares in the share record only when the respective actions and source records support them.

Disclaimer

This describes selected Companies Act and Rule 12 points as at October 2026. It is not advice on your transaction; the route, company documents, grant terms and approvals can change the treatment. Confirm the proposed steps with your company secretary and transaction counsel.

Last verified: 9 October 2026.