How should startups manage employee equity across group companies?

As startups grow, the organisation chart rarely stays simple.

A company that started with one Indian entity may eventually have a holding company, operating subsidiaries, overseas entities, or separate companies for different business lines. Employees may move between these entities without really leaving the wider business.

That creates a less obvious problem: what happens to their employee equity?

An employee might receive ESOPs from Company A, move to Company B two years later, and continue working for the same founder group. From an HR perspective, that may look like an internal transfer. From an equity perspective, however, the entities, schemes, employment contracts, accounting treatment and shareholder approvals may all be relevant.

The answer is not to treat the entire group as one company. Startups need a group-wide equity framework that still preserves entity-level ownership and compliance.

First, separate the employee from the entity granting the equity

The most important question is:

Which company is actually granting the equity, and whose shares will the employee eventually receive?

For example, imagine an Indian startup has:

• ParentCo, the holding company
• IndiaCo, its Indian operating subsidiary
• SingaporeCo, its overseas subsidiary

An employee working for IndiaCo might receive options over ParentCo shares. Another employee could receive options in IndiaCo itself.

These are economically different arrangements, even if both employees work for the same wider business.

Under the Companies (Share Capital and Debentures) Rules, 2014, the definition of an eligible employee for an ESOP can include an employee of a subsidiary or holding company. The rules also require separate shareholder approval where a company grants options to employees of its subsidiary or holding company.

That means a startup should not assume that one generic "group ESOP" automatically covers every employee and entity.

The legal relationship between the entities needs to be mapped before the equity is granted.

Use one equity policy, but maintain entity-level records

A practical model for a growing group is to have a consistent equity philosophy across the organisation while maintaining separate records for each legal entity.

For every grant, the company should be able to answer:

A central equity register can provide a group-level view, while each company's statutory and accounting records remain tied to the correct legal entity.

Decide what happens when employees move between group companies

This is where many equity plans become difficult.

Consider an employee who has 10,000 vested options in ParentCo while employed by IndiaCo. They are then transferred to another subsidiary.

There are several questions to resolve:

• Do their existing ParentCo options continue unchanged?
• Does vesting continue while they work for the new entity?
• Does the transfer trigger a leaver provision?
• Does the employee receive a new grant?
• Does the original employing entity need to reimburse another group company?
• Which entity recognises the relevant share-based payment expense?

There is no universal answer because the result depends on the structure of the scheme, the entities involved, the employment arrangements and the applicable accounting and regulatory requirements.

The important point is to define the treatment before an employee transfer happens, rather than trying to reconstruct it afterwards.

Example: an employee transfer after Series B

Suppose FintechCo has raised a Series B and operates through two subsidiaries.

Priya works for IndiaCo and receives 20,000 options over shares in the parent company. After 18 months, the group moves its payments business into a new subsidiary, PaymentsCo, and Priya becomes an employee of PaymentsCo.

If the equity documentation only says that options vest while Priya remains an "employee of the company", the transfer can create ambiguity.

A better framework would explicitly address intra-group transfers.

For example, the plan could specify whether service with another eligible group entity counts towards vesting, how the transfer affects leaver status, and which entity is responsible for the associated costs and records.

The exact drafting should be determined with the company's legal and tax advisers, but the operational principle is straightforward:

An employee moving between group companies should not automatically become an equity administration problem. The rules should already exist.

Accounting needs to follow the group structure

Group-company equity also creates an accounting layer that HR teams can easily overlook.

Ind AS 102 specifically addresses share-based payment transactions among group entities. It recognises situations where one group entity settles an equity award for employees of another group entity and sets out considerations for accounting in the separate financial statements of the entities involved.

For example, ParentCo may issue its shares to employees working for IndiaCo.

That does not mean the transaction disappears from IndiaCo's accounting simply because ParentCo is the entity whose shares are ultimately issued.

The accounting treatment can depend on factors including which entity receives the employee's services and which entity has the obligation to settle the award.

For listed companies, there are also specific SEBI requirements around employee share-based benefit schemes, including arrangements involving employees of subsidiaries or holding companies.

This is why equity administration should sit at the intersection of HR, finance, legal and company secretarial processes, rather than being maintained solely as an HR spreadsheet.

Build for the group you are becoming, not just the group you have today

A startup may have two entities today and six after its next round, acquisition or international expansion.

The equity framework should therefore accommodate:

New subsidiaries: Can employees of the new entity participate in an existing group scheme?

Employee transfers: Does service continue to count towards vesting?

Acquisitions: What happens to employees arriving with options from another company?

Fundraising: Does a new financing round change the underlying share capital, pool or dilution calculations?

Cross-border employees: Are additional regulatory, tax or foreign exchange requirements triggered?

Different equity instruments: Are ESOPs, SARs, RSUs or other instruments being tracked separately?

These questions become particularly important when the cap table is being used for fundraising, valuation, financial reporting or an exit.

What a scalable group equity system should give finance and HR

At minimum, teams should be able to see both sides of the picture:

Entity view: What equity has each legal entity granted, to whom and under which scheme?

Employee view: What awards does each employee hold across the group, and how are those awards affected by their current employing entity?

That distinction is powerful.

An employee should not lose visibility simply because their payroll entity changed. At the same time, the company should never lose the ability to trace each award back to the legal entity, scheme, approval, grant and accounting treatment behind it.