Designing and Implementing an ESOP Framework

A clear-eyed look at where they stood.

A growing fintech company in Bengaluru wanted to introduce employee stock options to attract and retain senior talent at the next stage of growth, but had no ESOP scheme in place, no pool carved out, and no documentation to point to.

The founders were clear about what they didn’t want: an informal promise scribbled into an offer letter or a verbal understanding about "equity later." That kind of arrangement can hold together while a company is small, but it tends to come apart the moment outside money enters the picture. An incoming investor’s due diligence team will ask for the scheme document, the board and shareholder resolutions behind it, and proof that grants were made and taxed correctly. Gaps at that stage slow a round down or force a founder to renegotiate commitments already made to employees.

So the brief was specific: an ESOP that was legally sound from day one, tax-aware for the employees receiving it, and built in a form that would hold up when a future investor’s lawyers went through it line by line.

CapEasy designed the ESOP end to end rather than handing over a template scheme and leaving the company to fill in the gaps. The first piece was the scheme document itself, drafted to set out eligibility, vesting conditions, and exercise rights in terms that would read the same way to an employee, a board member, and an outside diligence team.

Pool sizing came next. An option pool has to be large enough to make senior hires meaningful without diluting existing shareholders more than the cap table can absorb, and getting that number wrong is a common ESOP mistake: too small, and it can’t do the retention job it was built for; too large, and it becomes a negotiating problem at the next fundraise.

CapEasy then took the scheme through board and shareholder approval, and built out the mechanics that make an ESOP actually operable: how grants are issued, how vesting is tracked and triggered over time, and how an employee exercises options once they’ve vested. Each of these steps generates its own paper trail, and that trail is exactly what an investor’s diligence process goes looking for later.

Alongside the legal structure, CapEasy handled the ROC filings the ESOP triggers and briefed the company on how the tax treatment plays out at each stage. Employees typically face a perquisite tax on the difference between fair value and exercise price when they exercise their options, and a separate capital gains tax when they eventually sell the shares. Employees who understand this upfront are far less likely to be caught off guard later, and a founder who can explain it clearly builds more trust in the offer itself.

The outcome

The company came out with a compliant, well-documented ESOP it could put in front of employees with confidence, rather than a promise that depended on nobody asking hard questions.

The framework did the job it was built for on both fronts: it strengthened retention among the senior hires it was designed to attract, and when the company later sat down with investors, the ESOP stood up cleanly under scrutiny instead of becoming a line item to fix before the round could close.

What made it work

The scheme was built to withstand investor diligence from the start, not patched up in a hurry once a term sheet appeared. That distinction matters because ESOP problems are rarely visible until someone goes looking for them, by which point a company is negotiating a round, not fixing paperwork. Getting the pool sizing, approvals, mechanics, and filings right together, at the point the scheme is created, is what let this one hold up when it counted.