SH-6 Form: Register of Employee Stock Options

In India, companies issuing ESOPs must comply with the Companies Act 2013, which includes maintaining proper records through statutory forms. One such crucial document is the SH-6 form.

What is the SH-6 form? 

The SH-6 form is a mandatory register that companies must maintain when they issue employee stock options. It serves as an official record of all stock options granted, vested, exercised, and lapsed for each eligible employee. This register is a legal requirement under Rule 12(10) of the Companies (Share Capital and Debentures) Rules, 2014. 

By maintaining this register, companies create a structured record that helps regulators, auditors, and stakeholders track stock option allocations, monitor potential dilution, and ensure fair equity distribution. 

Who needs to maintain SH-6?

The requirement to maintain the SH-6 form applies to:

• Private Limited Companies issuing ESOPs
• Public Limited Companies offering stock options to employees
• Unlisted and Listed Companies (Listed companies must also comply with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021)

The responsibility of maintaining this register typically falls on the Company Secretary (CS) or compliance officer of the company.

Key components of an SH-6 form

The SH-6 register follows a specific format and must include the following information:

1. Employee details

• Name of the employee receiving stock options
• Employee identification number
• Employee’s department, designation, and date of joining the company

2. Stock option grant information

• The date when the stock options were granted
• Total number of options granted to the employee
• Exercise price (per share)
• Vesting schedule (cliff period, subsequent vesting percentages)
• Vesting conditions, including performance-based or time-based criteria
• Exercise period (timeframe within which options can be exercised)

3. Exercise details

• The date on which the employee exercises their stock options
• Number of options exercised
• Total amount paid for exercising the options
• Number of shares issued post-exercise

4. Lapsed or canceled records

• Number of stock options that lapsed 
• Date of lapse or cancellation
• Reason for lapse (non-exercise, policy breach, etc.)

5. Transfer or sale of shares (if applicable)

• Date and amount of sale or transfer
• Details of any transfer of shares post-exercise
• Name of the transferee (if shares are sold)

6. Approval and signature

• Date of ESOP scheme approval 
• Board resolution or committee approval for stock grants
• Authorized signatory details confirming the accuracy of the register

How to prepare an ESOP register using the SH-6 form

Below is a step-by-step guide on how to prepare and maintain an SH-6 register:

1. Collect employee details

Begin by gathering essential information for each employee eligible for stock options. This includes their full name, employee id, department, designation and date of joining.

2. Record grant details

Once stock options are granted, document the grant date, the total number of options issued, and the exercise price in the SH-6 form. Ensure that these details are in line with the approved ESOP plan. 

3. Document the vesting schedule

For each stock grant, specify the vesting schedule. If there are performance-based conditions, those should be clearly recorded. 

4. Track option exercises

When an employee chooses to exercise their stock options, update the register with the exercise date, the number of options exercised, and the total payment made. This ensures a clear record of how many options have been converted into shares.

5. Log lapsed or cancelled options

If an employee resigns, is terminated, or fails to exercise their options within the given timeframe, those options lapse. Record the number of stock options that have lapsed or been canceled, along with the date of lapse and the reason for cancellation (e.g., resignation, termination, or expiration). Maintaining this information ensures a clear audit trail and compliance with ESOP regulations.

6. Maintain records of transfers or sales (if applicable)

If employees transfer or sell their shares post-exercise, include the details of the transferee, transfer date, and sale amount in the register. 

7. Obtain approvals and update records

Before finalising entries, ensure that the board or ESOP committee has approved all stock option grants, exercises, and lapses. Once reviewed, obtain the necessary signatures from authorized signatories to validate the records.

By following these steps, you can create a well-maintained SH-6 register that keeps your company audit-ready.

If you're using EquityList, you can download SH-6 reports in real-time without manual effort. As a cap table and equity management platform, EquityList securely stores all shareholder and stock option grant details enabling you to generate the required reports in seconds.

Conclusion

The SH-6 register is essential for ensuring compliance with the Companies Act, 2013, and keeping track of ESOPs. By documenting key details such as grants, vesting schedules, exercises, and lapses, companies create a clear record that supports audits and regulatory reviews.

While manually managing the SH-6 register can be time-consuming, platforms like EquityList make the process easier by automating record-keeping and report generation. This not only saves time but also ensures accuracy and compliance with minimal effort.

For companies issuing ESOPs, proper record-keeping is more than just a legal requirement. It helps improve governance and builds trust with employees and stakeholders.

FAQs

1. What is form SH?

Under the Companies Act, 2013, "SH" forms are a series of statutory documents related to share capital and securities. Governed by the Companies (Share Capital and Debentures) Rules, 2014, these forms are essential for ensuring compliance in corporate share transactions.

Some key SH forms include:

• SH-1 – Certificate of Shareholding
• SH-4 – Securities Transfer Form
• SH-6 – Register of ESOPs

2. How do I register for ESOPs?

Companies looking to issue ESOPs must comply with the Companies Act, 2013 and SEBI regulations (for listed companies). 

The first step is to draft an ESOP scheme, which must be approved by the board of directors and shareholders. Next, companies must file MGT-14 with the Registrar of Companies (ROC) and start issuing grants.

3. What are the laws governing ESOPs in India?

In India, ESOPs are primarily governed by the Companies Act, 2013, SEBI (Share Based Employee Benefits) Regulations, 2014, and the Income Tax Act, 1961. These regulations provide the legal framework for issuing, managing, and regulating stock-based benefits for employees.