# Issue of Further Shares under ESOS — Section 62(1)(b)
## Meaning of Employees' Stock Option [Section 2(37)]
> The option given to the directors, officers or employees of a company or of its holding/subsidiary company which gives them the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price.
Note that ESOS is a right, not an obligation — the employee may choose not to exercise.
## Conditions for Issue
Shares may be issued to employees under an ESOS subject to:
1. Special resolution passed by the company, AND
2. Conditions prescribed under Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014.
## Relaxation — When Ordinary Resolution Suffices
An ordinary resolution (instead of special) is sufficient in the following cases:
Type of Company
Condition
Private Company
Has not defaulted in filing financial statements (Section 137) or Annual Return (Section 92)
Specified IFSC Public Company
No additional condition
## Listed Companies
In the case of a listed company, the conditions prescribed by SEBI (Share Based Employee Benefits) Regulations, 2014 shall also be observed.
## Key Takeaway
ESOS is a recognised exception to the pre-emptive rights principle of Section 62(1)(a) — shares can be offered to employees without first offering them to existing shareholders, provided the special resolution and rule-based conditions are satisfied.
Worked example
### Example 1
Example: TechCo Pvt. Ltd. (a private company that has duly filed all financials under Sec 137 and annual returns under Sec 92) wants to roll out an ESOS for its senior developers. Since it is a private company with no defaults, only an ordinary resolution is needed instead of a special resolution. The ESOS must still comply with Rule 12 of the Share Capital and Debentures Rules, 2014.
### Example 2
Example: Mega Ltd., a listed company, plans an ESOS for its CFO and senior management. It must pass a special resolution and additionally comply with SEBI (Share Based Employee Benefits) Regulations, 2014.
⚠️ Common exam mistakes
Treating ESOS as a contractual obligation — it is an option; the employee chooses whether to exercise.
Missing that holding/subsidiary company directors, officers or employees are also covered under the definition of 'employees' stock option' [Sec 2(37)].
Failing to apply SEBI Regulations to listed companies — the Companies Act conditions alone are not enough.
Forgetting that the relaxation to ordinary resolution for private companies requires no default in Section 137 / Section 92 filings.
Bare-Act text Section 62(1)(b) and Section 2(37) of the Companies Act, 2013 · The Companies Act, 2013 · click to expand
Section 62(1)(b): Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to employees under a scheme of employees' stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed.
Section 2(37): 'employees' stock option' means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price.