A key provision seeks to amend Section 42 of the Companies Act, 2013 by inserting the words “or such other scheme linked to the value of the share capital of a company” after the words “employee stock option”.
The government has listed the Bill for introduction in Parliament on Monday. Besides expanding stock-linked compensation tools, the legislation proposes enabling hybrid shareholder meetings, easing Corporate Social Responsibility (CSR) compliance for smaller companies and allowing conversion of specified trusts into LLPs.
A key provision seeks to amend Section 42 of the Companies Act, 2013 by inserting the words “or such other scheme linked to the value of the share capital of a company” after the words “employee stock option”. This change would formally recognise instruments such as RSUs and SARs, in addition to ESOPs, as shareholder-approved executive compensation mechanisms.
The move is expected to give companies greater flexibility in designing incentive structures that are widely used in global markets, particularly in technology, financial services and start-up ecosystems.
Unlike ESOPs, RSUs do not provide employees with an option to purchase shares. Instead, employees become entitled to receive shares at the end of a vesting period, subject to meeting tenure and performance conditions. SARs, meanwhile, are a deferred compensation mechanism tied to stock performance, entitling employees to receive the monetary equivalent of the appreciation in the value of a specified number of shares over a defined period, without requiring actual share allotment.
Hybrid AGMs
The Bill also introduces greater flexibility in shareholder engagement by enabling companies to conduct Annual General Meetings (AGMs) either physically or through video conferencing or other audio-visual means, wholly or partly.
Amendments to Section 96 of the Companies Act propose allowing hybrid AGMs while mandating that every company hold at least one physical AGM once every three years. Similarly, amendments to Section 100 propose enabling Extra-ordinary General Meetings (EGMs) to be held in hybrid mode.
These provisions seek to formalise practices that became widespread during the pandemic, while retaining the requirement for periodic in-person shareholder interaction.
CSR threshold eased
In a move expected to reduce compliance burden on smaller firms, the Bill proposes revising CSR eligibility norms under Section 135 of the Companies Act.
Currently, companies with a net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more are required to spend at least 2 per cent of their average net profits on CSR activities.
The proposed amendment raises the net profit threshold to ₹10 crore. It also provides that companies with CSR spending obligations of up to ₹1 crore will not be required to constitute a CSR Committee, a change expected to benefit micro, small and medium enterprises (MSMEs).
Trust-to-LLP conversion
On the LLP front, the Bill proposes inserting a new Section 57A to facilitate conversion of specified trusts into LLPs.
A “specified trust” will include trusts established under the Indian Trusts Act, 1882, or under Central or State legislation, and registered with the Securities and Exchange Board of India (SEBI) or the International Financial Services Centres Authority (IFSCA).
The amendment is expected to enable Alternative Investment Funds (AIFs) structured as trusts to convert into LLPs, with enabling provisions covering registration and the legal effect of such conversions. At present, conversion into LLPs is permitted only for firms, private companies and unlisted public companies.
Published on March 22, 2026