An ESOP grant gives employees the option to buy shares at a previously defined price.
The exercise price of options can be anything chosen by the company while giving out the ESOP grant letter. Some startups choose the exercise price as a nominal amount (say 10 Rs), while others choose the exercise price based upon the last round valuation of the company. If at a later date there is a liquidity event, which gives the options some real value, then it could be argued that the difference in the value of the company from when the employee joined to the liquidity event represents the added value to the company to which they contributed.
Disclaimer: This article has been prepared for general guidance on the subject matter and does not constitute professional advice. The matters described herein are general in nature and have not been evaluated based on applicable laws. You should not act upon the information contained in this note without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this note. LetsVenture Technologies Private Limited, its partners, employees, and agents accept no liability and disclaim all responsibility for the consequences of you or anyone else acting or refraining to act in reliance on the information contained in this publication or for any decision based on it. Without prior permission of LetsVenture Technologies Private Limited, this note may not be quoted in whole or in part or otherwise referred to any person or in any documents.