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Buy or Sell ESOP Shares

If you want to sell your ESOP Shares or if you’re looking to buy ESOP Shares, then you’re at right place.

What is ESOP?

ESOP means employee stock options. Under this, the companies issue shares to their employees generally at discounted rate from the market value. This is a win-win situation for both the companies and their employees. The companies get the required funds for their growth and expansion and on the other hand, their employees get the companies’ shares which they can liquidate after a certain time to make good money in the future either to their companies or in the listed (if the company is listed) or unlisted market.

Why ESOPs?

ESOPs are the smart tool used by the company to take dual benefits. The startups generally issue a lot of ESOP shares. So how companies get benefitted?

  • ESOPs help companies to reduce their operational expenses. Companies give less salary to their employees but compensate the same through ESOP shares. This will help start-ups to acquire talent at a lower cost.
    For example, let us suppose the package of the employee in the company is 10 lakhs per annum. The company may give 8 lakhs as cash and rest 2 lakh in the form of ESOPs i.e. shares of the company.
  • ESOPs have a certain time frame before which they can be exercised. It means employees have to work in the company for a certain period to get eligible for buying shares of the company. Generally, ESOP shares are given in tranches of 25% every year and 100% gets completed in 4 years. As ESOP shares are issued in tranches, the attrition rate (the speed at which employees are leaving the organization) gets reduced considerably. Employees think that if they leave early, they will not get the benefit from ESOPs shares. So they work longer in the company.

Advantage of ESOPs for Employees?

ESOPs can be a game-changer for the employees. If an employee is having ESOP shares of a company that has become Unicorn-name given to the startup having valuation above $1 Billion dollars, then the value of those ESOP shares will make employees super-rich.

We have seen this in the case of Flipkart India, when it was purchased by Walmart at a whopping valuation of 1.16 lakh Crores in the year 2017-18. Flipkart India had given ESOP shares even to the drivers of the company. So in that deal, everyone got a big chunk of return on ESOP shares and after that deal, many became millionaires.

Similarly, Paytm has issued ESOP shares to its employees at Rs.90 per share and in the unlisted market, it was sold in the price range of 5k to 18k. So we can calculate the kind of return they have generated. Obviously, the number of shares given to employees under ESOP scheme depends upon a position in the company but even then the small number of ESOP shares can make an employee rich once the company’s valuation touches the unicorn status.

Problem for Employees?

Liquidation is the biggest problem for the employees who are having ESOPs of the startups. Let us suppose the employee has ESOP shares in his/her demat account. And he/she wants to sell ESOP shares to get some immediate funds. So what is the solution?

They can approach the company requesting to buyback those ESOP shares. This option is not viable most of the time.

So what is the next solution?

The best solution is they can come to the platform like UnlistedZone to sell their ESOP shares.

Why UnlistedZone?

UnlistedZone.com has a large number of investors who are constantly looking to invest in good startups. UnlistedZone.com gives an opportunity to the employees to liquidate their ESOP shares whenever they want to. Depending upon the demand of ESOP shares of the company in the unlisted market, the UnlistedZone provides the fastest turnaround time in completing the deal.

So, if you are an employee of fastest-growing startups in India and want to liquidate your ESOP shares, please feel free to contact our team.

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Monday – Friday

Want to dilute your ESOPs? Contact us now.

    Frequently Asked Questions?

    What is ESOP in stock?

    ESOP is called as Employee Stock Option Plan. This is the tool which is used by companies for two broader purposes.

    1. To save cost on operation expenditure

    Most of the startups have problem of funding, and due to which hiring a good talent from the market is very difficult. So, best way is to make them a shareholder in the company by giving ESOPs. As company grow, their wealth will also grow.

        2. To reduce the attrition rates

    ESOPs are generally received in tranches. If company is really doing well that means value of shares will also grow. So, employees until get their whole shares won’t generally leave companies. This way attrition can be reduced.

    How are ESOP shares valued?

    There are number of methods available in the market to value the ESOP Shares. However, the most popular method is Black Scholes formula.

    The parameters which are used to calculate ESOP value are share price (S), exercise price (K), volatility (sigma), duration till exercise (T), and the risk-free rate (r). The simplicity of this method is its primary benefit.
    The other methods are Binomial Method, Monte Carlo method etc.

    Can ESOP shares be sold?

    Yes, ESOPs shares with the permission of company can be sold in the market. There are many players in the market such as UnlistedZone which basically helps employees to liquidate their ESOPs shares.

    Will ESOP affect share price?

    ESOPs generally do not affect the stock prices in the market as size of ESOPs to the total share capital is very small. And, ESOPs are a considered good for the company as it reduces the attrition rate.

    Is ESOP a good investment?

    ESOPs are generally given to the employees as a reward for performance. As an employee, if you think that the company is going to become big in future, then ESOPs can make you rich. So, you must get ESOPs of good companies. And, if you want to liquidate these ESOPs in the market before IPO, UnlistedZone which is India’s leading liquidity provider can help you with that. We have a large pool of investors ready to invest in these ESOPs. So feel free to contact UnlistedZone.

    Is ESOP good or bad?

    ESOP is good or bad depends upon the company’s business and financial performance. If the company is doing well like Paytm, Zomato, Swiggy, OLA, Uber, RazorPay, Cred etc. and you are a ESOP holder of these companies, then it can change your life. If you are having ESOPs of companies like Snapdeal, ClearTrip etc which are not in demand these days, then ESOPs are not worth.

    What is an ESOP valuation report?

    Generally, ESOPs are issued at a discount to the fair value of company stock. If the company is listed, then the share will be issued slightly lower than the market price at stock exchange. If the company is unlisted, then company do the valuation of its shares and issue ESOP at discount to that.

    As per Indian Accounting standard, ESOP Valuation is needed for working out the Employee Compensation Cost at the time of ESOP Grants Itself which is apportioned over the vesting period of ESOP. There are two methods of doing ESOP Valuations- Intrinsic Value Method & Fair Value Method.

    Is ESOP part of CTC?

    Yes, ESOPs are always a part of CTC. This reduces the in-hand salary of an employee. However, ESOPs can create a massive wealth.

    Can ESOP make you rich?

    Yes, ESOPs of growth companies are always beneficial for the employees. As an employee, you must know how your company is performing and what are their plans in future, and if you are convinced that company is going to make good revenue in future, you must exercise the ESOPs.

    What happens to ESOP when I quit?

    ESOPs are generally elapsed after a particular period when you leave the organisation. So, if ESOPs have value in market, you must exercise the option.

    Is ESOP taxable?

    Yes, ESOPs are taxable because they are always given at discount to the fair value. And, as per income tax law company cannot issue shares at lower than fair value.

    For example

    XYZ company has issued shares at Rs. 100 per share and fair value of share is Rs.1000 in the market. And, if you are eligible for 200 shares under ESOPs. Then how much total you need to pay to company to get these shares?

    ESOP Value = 200*100 = 20,000
    
Tax to be paid to Income Tax Department = 33%200(1000-100)= 59,400

    So, total you need to pay = 79,400 to get 200 shares.

    Per share value = 397 instead of 100

    UnlistedZone.Live is our latest platform where you can buy/sell unlisted shares and check their latest prices. Join Now For FREE!

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