What Happens to Your ESOP When You Quit Your Job?

Learn what happens to your Employee Stock Ownership Plan (ESOP) if you quit your job. Understand vesting schedules, payouts, and the options available for your ESOP after resignation or termination.
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3 mins read
09-June-2025

Have you ever wondered how ESOPs can shape your financial future? Employee Stock Ownership Plans (ESOPs) not only give you a stake in your company’s success but also serve as a long-term wealth-building tool. However, understanding how vesting works is key—while vested shares are yours to keep, unvested shares may be forfeited if you leave the company too soon. Whether you're planning your next career move or considering how to maximize your ESOP benefits, knowing your options can help you make informed financial decisions.

But did you know you can also unlock the value of your ESOPs without selling them?

Leverage your ESOPs for a loan and maximise your ownership! Apply now.

Understanding ESOP vesting: Differences between vested and unvested shares

ESOPs come with a vesting schedule that dictates when you gain full ownership of your allotted shares. Think of it as a loyalty-based reward system: the longer you stay, the more you earn.

  • Vested shares: These are shares you fully own. You can choose to exercise, sell, or hold them with no conditions attached. They represent the tangible value of your time and contribution.
  • Unvested shares: These remain under the company’s control. If you leave before they vest, you forfeit them entirely, no matter how close you were to the vesting date.

Before making any career transition, take a moment to review your ESOP vesting status. It could impact not just your next move, but also your long-term financial gains.

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What happens to unvested ESOPs when you leave?

Leaving your company before your ESOPs vest generally means saying goodbye to those shares. Unvested options are typically forfeited, and companies make this clear in the ESOP agreement. Regardless of whether you resign voluntarily or are terminated, if your shares haven't vested, you walk away with nothing in hand.

Are there any exceptions? Yes, some companies may allow accelerated vesting in exceptional cases such as retirement, permanent disability, or death. However, this is subject to company-specific policies and isn't guaranteed.

Leverage the vested. Forget the rest. Want to retain what you’ve rightfully earned? ESOP financing can help you access liquidity while holding on to your equity. Tap into your ESOP's value now

Options for your vested ESOPs after quitting

You’ve earned them now don’t lose them by missing the window of opportunity.

Most companies allow a 30–90 days period post-resignation for you to exercise your vested options. If you miss this window, even the shares you've rightfully earned could slip away. That's why it's crucial to act swiftly and strategically.

Your choices:

  • Buy the shares at the strike price and hold them for potential appreciation
  • Sell them back to the company (if a buy-back policy is in place)
  • Sell on the open market (provided your company allows it)

Each of these paths involves specific rules, timelines, and financial implications. Be aware of the deadlines, understand the costs involved, and plan your next move carefully. Your decisions today could have a lasting impact on your future wealth.

ESOP distribution rules upon employment termination

Your ESOP distribution depends on two things:

  1. How you leave (voluntarily or involuntarily)
  2. What’s in your vesting and company policy
    • Voluntary resignation = keep vested, lose unvested
    • Involuntary termination = same outcome, unless stated otherwise

Some companies offer extended timeframes or accelerated vesting for layoffs. Read the fine print and act within the deadline.

Need time but not ready to buy yet? Use ESOP financing to buy your vested shares without straining your finances. Apply now

Timeline for ESOP distributions after leaving the company

Once you exit a company, there are multiple time-sensitive decisions to make regarding your ESOPs. Missing these windows can lead to a permanent loss of equity. Here's a breakdown of what actions you need to take and by when:

Event

Action taken

Timeline

Resignation or termination

Review vested/unvested status

Immediate

Exercising vested options

Decide to buy or not

30–90 days

Sale of shares (to company)

Based on buy-back policy

Varies

Sale of shares (open market)

If allowed

As per company rules


Missing any step could cost you real money. Plan ahead, act quickly.

Tax implications of ESOP payouts post-resignation

Leaving your job with ESOPs in hand? Great but the taxman is waiting.

There are two crucial moments when taxes kick in:

1. At the time of exercise:

  • You will owe tax on the difference between the market value and your strike price.
  • This is treated as salary income and taxed according to your income slab.

2. At the time of sale:

  • If you hold the shares for less than a year, the profit is treated as short-term capital gain, taxed as per your income slab.
  • If held for more than a year, the gain is considered long-term capital gain, usually taxed at 10% (if gains exceed Rs. 1 lakh).

Rolling over ESOP distributions into retirement accounts

Thinking long term? If your company allows it, you can roll over your ESOP distributions into retirement accounts like PPF or EPF. This move can significantly improve tax efficiency and help your funds grow uninterrupted. Instead of cashing out and paying immediate taxes, your ESOP wealth can continue compounding over time quietly building your retirement corpus in the background.

  • Pros: Compound growth, deferred taxation, builds retirement corpus
  • Cons: Not all companies offer this facility; requires eligibility verification and advance planning

If you're not in urgent need of liquidity and have your eyes set on a stable retirement, this strategy is worth exploring. But be sure to consult with your HR or finance team to check if this option is available for your specific ESOP plan.

Selling ESOP shares back to the company: Pros and cons

This is often the fastest way to monetise your vested ESOPs, especially if your company has a standing buy-back offer. It involves less paperwork and avoids market timing risks. But it comes with trade-offs.

Pros:

  • Instant liquidity without the hassle of market transactions
  • Simpler and quicker process, often handled internally

Cons:

  • Usually at a lower valuation than open market
  • You miss out on any potential future price increase

If you're weighing liquidity versus future upside, pause before selling. Want both? Apply for an ESOP loan to retain ownership while still unlocking value.

Legal considerations for ESOP participants leaving employment

Before resigning, it’s crucial to examine the legal fine print tied to your ESOP plan. Key areas to focus on:

  • Vesting terms: Are you close to a milestone? Leaving early could mean forfeiting shares.
  • Buy-back clauses: Understand when and how the company can repurchase your shares.
  • Non-compete agreements: Could impact your ability to work with competitors post-exit.
  • Exercise deadlines: Usually within 30–90 days; missing it could cost you your vested shares.

Also, assess the tax treatment and whether you’ll retain ownership rights post-exit. These nuances vary by company, so consulting a tax or legal advisor is a smart move.

Understanding company buy-back rights and procedures

If your company offers to buy back your shares, make sure you’re clear on the procedures involved. Every organisation has its own terms, and here’s what to look out for:

  • Sale initiation timelines: How soon after resignation can you sell?
  • Price determination: Is the price fixed, or based on fair market value?
  • Lock-in clauses: Can you sell to external parties, or are you restricted?

Conclusion

Quitting a job with ESOPs on hand is more than just an exit it’s a financial milestone. From understanding what happens to ESOP if you quit to exploring strategies like retirement rollovers or company buy-backs, every decision you make can influence your long-term wealth. Take time to evaluate your vested and unvested shares, tax impact, legal clauses, and liquidity needs before acting.

Looking for the best of both worlds ownership and liquidity? Apply for an ESOP and unlock the value of your shares without selling them.

Frequently asked questions

What happens to my ESOP if I quit before vesting?
If you quit before your ESOP shares are vested, you typically forfeit your unvested shares. These shares are returned to the company, and you lose the right to claim ownership or exercise them.

How long do I have to exercise my vested ESOP options after quitting?
After quitting, you generally have a limited time, typically 30 to 90 days, to exercise your vested ESOP options. If you fail to exercise them within this period, the options may expire.

Are there tax penalties for cashing out ESOP shares after resignation?
There are no specific tax penalties for cashing out ESOP shares after resignation. However, you will be subject to capital gains tax on any profit made from selling the shares, depending on the holding period.

What happens to my ESOP if I am laid off or terminated?

Your vested ESOP shares remain yours, but unvested shares are forfeited. Private companies may have a buyback option, while public company shares can be sold anytime.

What is the difference between ESOPs and RSUs when resigning?

ESOPs (Employee Stock Option Plans) require you to exercise your vested options to own shares. RSUs (Restricted Stock Units) typically convert into shares automatically upon vesting. After resignation, unexercised ESOPs may lapse, whereas vested RSUs remain your property.

Can I transfer my ESOPs to another demat account after quitting?

Once exercised and converted into shares, you can transfer them to another demat account, subject to company policies and lock-in periods. Unexercised ESOPs cannot be transferred, as they are company-specific stock options.

What happens to ESOPs in case of retirement or disability?

In cases of retirement or permanent disability, companies may allow accelerated vesting or extended time to exercise options. This varies by employer policy, so review your ESOP agreement for exact terms.

Is there a deadline to exercise vested options after resignation?

Yes, most companies provide a limited window typically 3 to 6 months, to exercise vested ESOPs post-resignation. If not exercised within this period, the options may lapse permanently.

Can I use my ESOPs as collateral for a loan after I resign?

Yes, if your ESOPs are already exercised and held as shares, you may use them as collateral for ESOP financing or loan against securities.

Is it possible for my employer to reclaim vested ESOPs after resignation?

No, vested ESOPs are legally yours. However, if you don’t exercise them within the post-resignation window, they may expire. Employers cannot reclaim them once legally vested and exercised.

How do ESOP rules differ for private vs. public companies?

In private firms, liquidity is limited and exercise terms may be stricter. Public companies offer easier share sale post-exercise. Vesting, taxation, and exit rules differ significantly based on the company’s listing status.

Can I retain or sell my vested ESOP shares after leaving my job?

Yes, once exercised, you can retain or sell the shares, subject to lock-in or trading restrictions. In public companies, this is easier; in private firms, you may need a buyer or company approval.

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