Setting up an ESOP pool for an Indian startup: a step-by-step

A 10–15% pool at seed stage is standard, refreshed at every priced round to 10% post-money. Sizing below 7% almost always leads to a follow-on top-up under pressure mid-round, which dilutes founders disproportionately. Sizing above 18% before a Series A signals to investors that you've over-issued and forces them to demand a re-cut.

The ESOP scheme is approved by special resolution at an EGM, with a separate Form MGT-14 filing. The trust route (where a trust holds the options) and the direct route (where the company grants directly) both work — the trust route adds operational overhead but cleans up cap-table mechanics at exit.

Vesting is typically four years with a one-year cliff, but we are increasingly seeing five-year vesting for leadership hires. The exercise window post-resignation is the single most-negotiated clause — 90 days is industry standard, but progressive companies offer 5–10 year exercise windows to make options genuinely valuable.

At exercise, the difference between FMV (under Rule 11UA) and the exercise price is taxed as a perquisite at slab rates. At sale, the difference between sale price and FMV-at-exercise is taxed as capital gains.

DPIIT-recognised startups can defer the perquisite tax for up to 48 months from exercise, or until sale/resignation, whichever is earliest. This is a meaningful benefit and should be considered when timing exercise events for employees.

Keep the option grant register, the share allotment register and the cap-table model strictly in sync. We've seen exits delayed by 6–8 weeks because of mismatches between Zoho People records, the company secretary's working files, and the founders' Excel cap table. Pick one source of truth, automate the rest.