ESOP Valuation Process and the role of a Merchant Bank

ESOP is a tax benefit scheme for owners in which they sell some portion of their business to employees, it also acts as a retirement option for employees. Different types of industries can consider ESOP for tax benefits, it is also an option for SMEs and family owned businesses. Liquidity options, profitability, the size of the company, and borrowing capacity are some of the considerations to set up an ESOP.

For business owners considering this option, it is best to contact a company for ESOP valuation and planning. It is a specialized service provided only by SEBI registered Merchant Banking firms. Traditionally, ESOPs are used by companies to retain top executives and best of their workforce by giving them ownership. A company may also decide to make this scheme available to all employees depending on its ESOP valuation services. There is an elaborate procedure and certain rules for a company to be eligible for granting ESOP. A scheme draft is prepared by the valuation firm including purpose, eligibility, vesting period, and tax liability. a special resolution is passed as a signal of approval from shareholders and board of directors of the company. Before making any announcement regarding this scheme, the resolution passed by shareholders is filed with the ROC. The merchant banking firm uses various methods for accurate and fair ESOP valuation. This valuation is used to draft an attractive scheme beneficial for employees and the company. ESOP register is maintained by the company for legal purposes carrying proper records.

There is no single method for valuation the firm providing this service may consider different options that may have an impact on the value of stock these factors can be internal as well as external. Some of the common factors include the time value, market volatility, interest rates, and dividend yield the valuation firms include as many factors to provide accuracy. Commonly, there are two methods for ESOP valuation, fair value method and intrinsic value method and both are used for accuracy. While the effort is also to make the scheme attractive for employees as their participation defines the success of this option.

CCVIndia - Corporate Capital Ventures Pvt. Ltd. is a SEBI Registered Category-I Merchant Banker. With a team of professionals from respective fields, it has emerged as a brand for legal and financial advisory. CCV group has expertise in business valuations, secretarial services, and corporate restructuring approaching the client needs in the most feasible manner to provide time bound and effective guidance.

Conclusion: For an attractive and successful ESOP Valuation, the services of a leading merchant Banking firm are a requirement.

Corporate Capital Ventures is a leading brand company in the field of consultancy services that offers legal, financial, and secretarial services having more than 10 years of experience.