IT Taskforce

IT Action Plan (Part II - Hardware)

VII. COMPANY LAW ISSUES

57. Definition of IT Products company will be included in the Company Law.

58. A separate set of norms will govern the Employees Stock Option (ESOP) schemes for the IT industry on the following lines:

i) Companies Act will be amended to allow IT companies to increase their total paid up capital by additional 10 percent for allocating the same to employees, promoters, directors, as stock options without prior approval in the AGM at 30% below the average market price for the last six months. For additional public or Rights offering the absolute volume of share in the pool will increase, while the percentage ceiling remains at 10 percent. IT companies will be allowed to increase this pool of share (for allocating to employees, promoters, directors) beyond 10 percent upto a maximum of 25 percent with the approval from the AGM.

ii) All Public limited IT companies will be allowed to issue shares to its employees, directors, promoters under the ESOP scheme at 30 percent below the average market price for the last six months, provided the same is approve din the AGM. All private limited IT companies will be allowed to issue shares to its employees, directors and promoters at a price which has the approval of the Government approved valuers like I-Sec and other FIs.

iii) IT companies will be allowed to distribute shares under the ESOP scheme to employees based on the management's judgement of the employees value addition.

iv) Clarifications will be issued that Income Tax and Capital Gains Tax will not be applicable on the disinvestment of shares received through an ESOP scheme.

v) The employees should be allowed to pay for stocks at the time of exercising the option and not at the vesting point. However, the exercising of such option will have to be done within 8 years of the grant of stocks provided the employee continues in the company.

59. For Sweat Equity, an additional new proviso will be added to Clauses 73 and 74(7)(6) of Companies Bill, 1997: 'The IT Hardware Companies in India or their subsidiaries abroad may also issue Sweat Equity to their Promoter-Directors or whole time Directors or employees for providing any know-how, intellectual property or value addition to the Company on exclusive basis on such terms and conditions as may be prescribed by SEBI or the Central Government as the case may be. A new definition No.(66) will be added after definition No(65) in Clause 2 as under as "(66) Sweat Equity means equity allotted to promoter-Directors, whole time Directors or employees for providing any know-how, intellectual property or value addition to the Company."

60. Dollar linked Stock options to Indian IT companies were announced in the 1998 Budget and detailed guidelines in this have been issued by the Department of Economic Affairs, Ministry of Finance. This will be modified in accordance with the definition of the IT industry to include all IT Products, Software and Services company.

61. Ministry of Finance will include IT Products, Software and Service Sector while issuing general guidelines for dual listing of companies as well as while considering two-way fungability for ADRs/GDRs.

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