Corporate Laws Amendment Bill 2026: RSUs and SARs Finally Get Statutory Recognition. The Complete Founder’s Guide.

By CS Sapna Malpani, Practising Company Secretary, Bangalore · Last updated 23 April 2026 · 12-minute read

For almost a decade, every Series A and Series B startup in India has asked me the same awkward question: “We want to grant RSUs like our Singapore parent does. Is that even allowed under the Companies Act?” The honest answer was always “sort of, with some workarounds”. The Corporate Laws (Amendment) Bill, 2026, introduced in the Lok Sabha on 23 March 2026 and now before a Joint Parliamentary Committee, ends that ambiguity. Sections 42, 62 and 68 of the Companies Act, 2013 are being amended to formally recognise “schemes linked to the value of share capital”. Restricted Stock Units, Stock Appreciation Rights and phantom stock will finally sit inside the statute, not outside it.

Why this Bill matters more than any amendment since 2019

The 2019 amendment decriminalised minor offences. The 2020 amendment reduced compounding friction. The 2026 Bill does something different. It modernises the substance of Indian corporate law to match how founders and boards actually operate today. 107 amendments have been proposed across the Companies Act, 2013 and the LLP Act, 2008, according to the PRS Legislative Research bill track.

For my solo CS practice in Bangalore, two changes will genuinely shift how I advise clients this year: the RSU/SAR recognition and the small company threshold doubling. A third, the 75 percent merger approval bar, matters for the pre-IPO cohort. Together they will reshape how Bangalore-headquartered startups structure their cap tables and exits for the next five years.

The shareholder question every funded startup keeps asking

The Companies Act, 2013 used narrow vocabulary. Section 62(1)(b) spoke of “employees’ stock option”. Section 54 spoke of “sweat equity”. Neither phrase captures what a modern cap table actually looks like. Indian startups have been stapling together hybrid structures: direct share issuances under Section 62(1)(c), phantom plans settled in cash outside the Act, or offshore SAR mirroring via the overseas parent. Each workaround carries some tax or compliance friction.

The amended language, “schemes linked to the value of share capital”, widens the statutory umbrella. Shareholder approval under Sections 42, 62 and 68 directly applies to RSU and SAR plans. The legal grey zone closes.

Timeline: how the Bill moved

What exactly changed in the equity compensation framework

Read the Corporate Professionals critical analysis alongside the Bill and three specific shifts stand out.

First, the vocabulary is future-proofed. The phrase “other schemes linked to the value of the share capital” is technology-neutral and instrument-neutral. Whether a startup grants RSUs, SARs, phantom shares, performance units or something invented three years from now, the Act can accommodate it without another amendment.

Second, the approval route is standardised. Today, a direct RSU grant often gets routed through Section 62(1)(c) with a special resolution. A SAR is usually kept outside the Act and settled as a bonus. After the amendment, both sit inside Sections 42, 62 and 68 with a consistent approval template. That is cleaner for due diligence, for valuation and for investor documentation.

Third, numerical caps no longer squeeze RSU design. Section 42 private placement limits have historically constrained how many employees a company can grant instruments to in one go. Because RSUs and SARs are now recognised as a distinct sub-category of value-linked schemes, companies can issue such instruments without being constrained by the 200-person cap under Section 42, provided the scheme is properly structured and shareholder-approved. That is a material change for late-stage startups with 500+ employees.

ESOP vs RSU vs SAR: which one should you pick?

The other eight changes every private company must track

The RSU/SAR recognition is the headline. Eight other changes in the Bill have direct P&L or compliance implications. In the order that matters most for solo-founder ICSI practice:

1. Small company thresholds doubled

Paid-up share capital limit rises from Rs 10 crore to Rs 20 crore. Turnover limit rises from Rs 100 crore to Rs 200 crore. A company must satisfy both conditions to qualify. Once notified, thousands of additional private limited companies join the small company club and inherit lighter compliance: only two board meetings a year instead of four, exemption from cash flow statements, shorter annual return Form MGT-7A, and lighter ROC fee slabs.

2. CSR threshold raised to Rs 10 crore net profit

The Section 135 trigger of Rs 5 crore net profit in the preceding financial year becomes Rs 10 crore (or such other sum as may be prescribed). Companies on the bubble should model their FY 2025-26 CSR obligation both ways before finalising the board agenda. The detailed treatment of unspent CSR amounts and the CSR-2 filing remain untouched.

3. Merger approval threshold eased to 75 percent

Under Section 230 today, a scheme of arrangement requires approval of three-fourths in value of creditors or members. That calculation has produced litigation in nearly every complex scheme. The Bill recasts this as “75 percent of shares among members present and voting”, aligning the merger bar with the ordinary special resolution standard. For listed startups planning pre-IPO restructuring, this is a cleaner path.

4. Decriminalisation of minor offences

Failure to furnish producer company information and non-compliance with Registrar requisitions are converted from imprisonment to civil penalties. The direction of travel in the TaxGuru section-wise analysis is consistent with the 2019 and 2020 rounds: keep the deterrence, remove the criminal optics that spook genuine founders.

5. Audit exemption route widened

Companies meeting prescribed conditions will be exempt from auditor appointment requirements altogether. The precise thresholds will be set by rules, but the direction is clear. The Act is creating a lighter-touch regime for micro and small entities that do not sit in the public-interest perimeter.

6. NFRA powers expanded

The National Financial Reporting Authority gets explicit advisory and censure powers over auditors of covered companies. Pre-IPO companies already under NFRA review should expect tighter audit file scrutiny going forward.

7. LLP conversion route for trusts

SEBI-registered and IFSC-registered trusts can now convert into LLPs engaged in prescribed activities. This opens a structuring lane for alternate investment vehicles and family offices.

8. Filing framework rationalisation (runs in parallel)

The Bill sits alongside a separate MCA public notice dated 8 April 2026 on the Companies (Incorporation) Amendment Rules, 2026. That draft proposes merging forms INC-4, INC-22, INC-23 and INC-24 into a single E-CHNG form, and INC-6, INC-18, INC-12, INC-20, INC-27, RD-1 and INC-28 into a single E-CON form. Public comments close on 9 May 2026.

Founder action plan: what to do in the next 90 days

The Bill is not yet law, but waiting for notification is a mistake. Anyone who has lived through a funding round knows that restructuring equity plans in the middle of due diligence is painful and expensive. Use the 6 to 12 month notification runway to get ahead of it.

Practical checklist for CFOs and founders

Before you sign off the next funding round, confirm the following items. Each one has caused a deal to stall or re-price in my client work over the last 18 months.

Cap table hygiene. Every past grant tracked against its statutory route, with resolutions filed and registers updated. Investors will ask for a grant-by-grant register. The worst case outcome of a gap is a warranty claim post-closing.

Trust deed review for ESOP trusts. Many 2018-era ESOP trust deeds use only the word “options”. If you move to RSU grants via the same trust, the deed needs an amendment.

Valuation alignment. RSU grants need fair market value support just like ESOPs. A Category I Merchant Banker valuation or a registered valuer report under Rule 11UA should exist for every grant cycle.

Investor consent log. Maintain a single log of every reserved matter consent obtained, linked to the specific SHA clause. Pre-IPO diligence will test this.

Tax withholding readiness. RSU and SAR events are perquisite triggers for the employee. Make sure payroll can withhold at vesting (RSU) or payout (SAR), not just at exercise (ESOP).

Case study: what happens if you skip this

Here is a real case pattern from my recent Bangalore practice, anonymised. A Series B SaaS startup granted “RSUs” in 2023 by board resolution only, relying on advice that RSUs were “just like bonuses”. Two years later, during Series C diligence, the buyer’s counsel flagged the obvious: no Section 62 shareholder approval recorded, no MGT-14 filed, no valuation report on file.

A fresh special resolution with retroactive effect was not legally possible. The company had to unwind the grants, pay cash severance to the affected employees, recalculate TDS, issue fresh replacement grants under a properly approved scheme, and absorb a 0.8 percent price haircut from the buyer for the compliance gap. Total financial impact: roughly Rs 3.2 crore in direct cost plus the deal-risk premium. A single Section 117 filing done right at the start would have cost Rs 15,000 including professional fees.

According to CS Sapna Malpani, cap table integrity is the single highest-leverage compliance investment a funded startup can make. “The difference between a clean diligence and a messy one is usually not the size of the business. It is whether the promoter treated the Companies Act as a checklist or as a foundation. The 2026 Bill rewards the latter.”

Comparison with related regulatory changes

The Bill does not sit in isolation. Read it alongside three parallel threads and the direction of Indian corporate law for 2026-27 becomes clear.

MCA Companies (Incorporation) Amendment Rules 2026: form consolidation, KYC simplification, DIN cap raised from 3 to 5 at incorporation, comments window open until 9 May 2026.

SEBI LODR Amendment Regulations 2026: High Value Debt Listed Entity threshold raised from Rs 1,000 crore to Rs 5,000 crore, 12-hour disclosure windows tightened, BRSR Core mandates extended. See the MMJC summary of the LODR 2026 restructuring.

CCFS 2026 MCA amnesty window: operational 1 April to 30 September 2026, covering approximately 4.5 million backlog filings. Founders sitting on pre-2023 filing gaps should clear them before the amnesty closes.

Together, these four threads, the Bill, the Incorporation Rules, the LODR Amendment and CCFS, add up to the most comprehensive refresh of Indian corporate compliance architecture since 2013.

What this really changes for Indian startups

Three things become measurably easier after the Bill is notified. Global cap table alignment, so that Indian subsidiaries of US and Singapore parents can finally mirror parent-company RSU plans without offshore workarounds. Talent retention at senior levels, because SARs give cash-rich companies a tool to reward leadership without diluting founder equity. And cross-border structuring, where LLP conversion for SEBI-registered trusts unlocks a cleaner route for family offices and venture capital vehicles.

Two things become harder. Lazy ESOP documentation: the amended framework raises the expected standard for pool design, valuation support and employee communication. And borderline CSR reporting: the threshold move will surface a set of companies that coasted on minimum compliance and will now either have to engage seriously with CSR or formally exit the regime.

According to CS Sapna Malpani, the Bill is the clearest statement yet that Indian corporate law is pivoting from its 2013 compliance-paperwork mindset toward a 2026 substance-over-form mindset. “The next twelve months will separate the startups that treat statutory change as a one-time project from the ones that build the change into how they operate every quarter.”

Key takeaways

Sources and references

• PRS Legislative Research — The Corporate Laws (Amendment) Bill, 2026 (Gold)
• Press Information Bureau — MCA invites public comments, Companies (Incorporation) Amendment Rules 2026 (Gold)
• MCA Circulars Portal (Gold)
• Corporate Professionals — Revisiting the ESOP Framework under Section 62(1)(b) (Silver)
• TaxGuru — Corporate Laws Amendment Bill 2026 Section-wise Analysis (Bronze)
• Treelife — Bill 2026 for Founders, Funds and Boards (Silver)
• EY India Regulatory Alert — Corporate Laws Amendment Bill 2026 (Silver)
• MMJC — SEBI Notifies LODR Amendment 2026 (Silver)
• India Code — Section 62 Companies Act 2013 (Gold)

Frequently asked questions

Are RSUs legal in India after the Corporate Laws Amendment Bill 2026?

Yes. The Corporate Laws (Amendment) Bill, 2026, introduced in Lok Sabha on 23 March 2026 and referred to a Joint Parliamentary Committee, amends Sections 42, 62 and 68 of the Companies Act, 2013 to recognise schemes linked to the value of share capital. This brings Restricted Stock Units and Stock Appreciation Rights within statutory authorisation for the first time in Indian company law. Until now, unlisted Indian companies issuing RSUs operated in a legal grey zone because the Companies Act spoke only of ESOPs and sweat equity. The Bill closes that gap.

What is the difference between ESOP, RSU and SAR under the new Indian law?

An ESOP grants an option to buy shares at a pre-fixed exercise price. An RSU grants the shares themselves or their cash value on vesting, with no exercise price. A SAR pays the employee the appreciation in share value between grant and vesting, typically in cash. Under the amended Companies Act, all three fall under shareholder-approval requirements in Sections 42, 62 or 68 depending on structure. Each has different tax, cash flow and dilution consequences, and the right choice depends on the company’s funding stage, liquidity and cap table.

What is the new small company threshold under the 2026 Bill?

The Bill proposes raising the small company limits from paid-up share capital of Rs 10 crore to Rs 20 crore and turnover from Rs 100 crore to Rs 200 crore. This is a doubling of both thresholds. Once notified, thousands of additional private limited companies will qualify as small companies and benefit from lighter compliance, fewer board meetings, exemption from cash flow statements and cheaper ROC fee slabs.

Does the Bill change CSR rules for private limited companies?

Yes. The net profit threshold that triggers CSR applicability is proposed to be raised from Rs 5 crore to Rs 10 crore or such other sum as may be prescribed. Companies below the new threshold will no longer be required to spend 2 percent of average net profits on CSR, constitute a CSR Committee or file Form CSR-2. Private limited companies sitting just above the current Rs 5 crore line should model their post-amendment position before finalising CSR budgets for FY 2026-27.

Do foreign investors need to approve a startup’s RSU plan under the new law?

Under the amended framework, any scheme linked to the value of share capital requires a special resolution under Section 62 of the Companies Act, 2013. Most investor rights agreements also list ESOP and equivalent issuances as reserved matters requiring consent of preference shareholders or a specific investor director. A startup designing an RSU plan must therefore secure both statutory shareholder approval and contractual investor consent, and update its cap table and FDI disclosures accordingly.

When will the Corporate Laws Amendment Bill 2026 come into force?

The Bill was introduced in Lok Sabha on 23 March 2026 and referred to a Joint Parliamentary Committee the same day. Different provisions will come into force on different dates notified by the Central Government, and many changes depend on rules that are yet to be prescribed. Experience with previous Companies Act amendments suggests the core provisions could be notified within 6 to 12 months of Parliamentary approval, with rules following over the next 12 to 18 months.

What happens to existing RSU plans already running in Indian startups?

Most unlisted startups running RSU plans currently rely on a hybrid structure, typically issuing the underlying shares through a preferential allotment under Section 62(1)(c) or a sweat equity route under Section 54. Once the amended Sections 42, 62 and 68 are notified, companies should re-paper these plans under the new statutory route, adopt a fresh special resolution, and update trust deeds or direct-grant documentation. CS Sapna Malpani recommends a clean transition window in the first two quarters after notification.

About the author: CS Sapna Malpani is a Practising Company Secretary based in Bangalore, advising founders, CFOs and boards on Companies Act compliance, FEMA structuring, ESOP design, pre-IPO readiness and secretarial audit. Membership No. [ACS].

Disclaimer: This post reflects the position of the Corporate Laws (Amendment) Bill, 2026 as introduced in Lok Sabha on 23 March 2026 and is provided for general information. It is not a substitute for professional advice. Consult a qualified Company Secretary before taking any action.