Employee Stock Option Plans (ESOPs) have evolved from being a niche retention tool to a core component of talent and wealth creation strategies in Indian companies. Among the different approaches to implementing ESOPs, the Trust route is emerging as the preferred model not only in listed companies, but it is observed that startups and growth stage companies are also evaluating the ESOP as tool for retention and motivation.
The Trust route is gaining popularity in different industry segments including JSW Steel, Infosys, Mahendra and Mahendra, Vedanta and many such companies in listed segment and Zerodha, Swiggy, Lupin, OfBusiness, SBI Mutual Fund and similar other companies of the unlisted segment. These companies have adopted this model not just for tax and administrative efficiencies, but to institutionalize ownership in a way that aligns with long-term vision, employee expectations, and investor requirements.
An ESOP Trust is a dedicated special purpose vehicle established to hold and manage shares on behalf of employees. When an employee exercise vested options, the trust transfers the corresponding number of shares to the employee’s demat account.
This structure allows companies to manage ESOP execution centrally and flexibly across different lifecycle events, be it issuance, transfer, buyback, or liquidity.
An ESOP Trust offers multiple acquisition options:
This flexibility is a key advantage, especially when aligning ESOP execution with funding rounds or strategic investor exits.
Through a trust, companies can pre-allocate shares, aggregate exercises, and streamline reporting, resulting in stronger control over equity dilution and cleaner cap table management.
In Listed Companies, trust enables administrative efficiency which avoids various recurring compliances and also avoids the hassle of calling Board meeting for every allotment. In unlisted companies as well, the trust helps in controlling the cap table dilution by separating legal and beneficial ownership of shares between trust and employee.
ESOP administration requires alignment with the regulatory frameworks of the MCA, SEBI, Income Tax Act, and FEMA/RBI. Centralizing the structure through a trust simplifies this complexity, especially for startups that may not yet have robust legal and compliance functions. The company(ies) can outsource the compliances of ESOP trust for day to day administration.
Trust-based structures are particularly effective during:
In such events, the trust can act as a single-point aggregator, enabling smooth execution, quicker settlement, and consolidated communication with legal and investor teams. Employees benefit from organized liquidity and fewer operational hurdles.
The trust route gives the flexibility to the Company to chose the source of shares which includes primary acquisition or secondary acquisition or combination of both as long as it is allowed in the trust deed. The Company can decide the source dep. The ability to tailor the source of shares gives the trust route a significant edge over direct ESOP allocations.
Having a formal trust vehicle signals a long-term commitment to equity ownership. Employees are more likely to view ESOPs as a genuine wealth creation tool when they see dedicated governance, transparent disclosures, and timely execution, all of which are enabled through trust led models.
One of the biggest hurdles for employees is the requirement of upfront funding to exercise options, especially if shares are illiquid. The trust route enables cashless mechanisms where the trust can finance the exercise and recover the proceeds through buybacks or secondary sales, without burdening the employee.
This has led to:
Despite its many advantages, the trust route is not plug-and-play. Companies must be prepared to manage the following:
These are not roadblocks, but they do require planning, execution discipline, and expert guidance.
The ESOP trust model is no longer just a workaround, it’s a strategic choice for companies serious about building ownership culture, ensuring cap table discipline, and delivering real value to employees.
For founders, CFOs, and CHROs, the trust route offers unmatched flexibility, control, and scalability. It aligns well with investor expectations, simplifies liquidity management, and addresses one of the most practical concerns of employees — exercising without financial stress.
As Indian companies aim to retain top talent and foster long-term value creation, the ESOP trust structure is becoming the default path, not just because it works technically, but because it makes equity work strategically.
