An option is not a share, and a board-approved pool is not the same as an employee grant or issued equity.
CFO, HR and company secretary
At every ESOP event
Reconcile scheme, grants and cap table.
ESOP scheme and approvals.
The company should distinguish authorised pool, granted options, vested options, exercised options, lapsed options and shares issued. Each stage requires its own approval and record.
Tax treatment can arise at exercise and later sale depending on the employee, company and applicable law. Eligible startup deferral provisions have conditions and should not be assumed for every DPIIT-recognised company or employee.
Valuation affects tax, accounting and investor reporting. The valuation basis, date, valuer, exchange rate where relevant and cap-table impact should be preserved.
| Control | What it covers | Operating rule |
|---|---|---|
| Scheme and pool | Shareholder-approved framework and limit. | Match charter and filings. |
| Grant | Individual award with vesting terms. | Keep acceptance and board approval. |
| Exercise | Employee pays price and tax is assessed. | Complete payroll and allotment steps. |
| Sale or lapse | Capital gain or cancellation event. | Update cap table and tax records. |
Use one ESOP event checklist from grant through allotment. HR, payroll, legal, company-secretarial and finance teams should not maintain conflicting spreadsheets.
Explain tax and liquidity risk to employees without providing unsupported personal advice. A paper gain can create tax before the employee receives sale proceeds.
Document the decision, owner, due date and evidence expected. A verbal explanation should be converted into a board note, approved working, contract amendment, portal acknowledgement or reconciliation before the item is treated as closed.
Rules, forms, thresholds and interpretations can change. The operating team should use the latest official source and the actual company facts instead of copying a control from another entity or prior year.
Ask four questions: Is the obligation or accounting treatment applicable? Has the underlying transaction been completely recorded? Does the evidence agree with the books and portal? Has an independent reviewer challenged the exception?
The review should distinguish a timing difference from an error, a judgement from a missing document, and a control failure from a one-time operational delay. Repeated small exceptions deserve root-cause action because they often become material during audit, fundraising, notice or distress.
The operating record should connect the control stages—scheme and pool, grant, exercise, sale or lapse—to the same transaction population. If the source list, accounting ledger, tax return, board record and management dashboard use different populations, the review can appear complete while exceptions remain outside the test.
Management should define an exception threshold, but the threshold must not hide repeated failures. A small error occurring every month can signal weak master data, unclear ownership or a broken interface. The reviewer should record root cause, immediate correction and preventive action separately.
Closure requires evidence. At minimum, the file should show who prepared the work, who reviewed it, which source documents were used, what differences remained and when the next follow-up is due. Screenshots without context or spreadsheets without source references are not a durable control record.
Finance should reconcile the operational schedule to the general ledger and explain every reconciling item by amount, age and owner. Manual journals, overrides and post-close changes deserve heightened review because they can bypass the normal transaction flow.
The board view should separate reported results from estimates and management metrics. When a KPI does not follow the statutory accounting framework, provide a stable definition and a bridge to the closest financial statement line so the measure cannot be changed silently.