An ESOP (Employee Stock Option Plan) gives employees the right — but not the obligation — to buy a set number of company shares at a pre-agreed "exercise price" after a vesting period. When an employee exercises, they pay the exercise price and receive real shares into their demat account.
Why it matters to you
ESOPs are one of the main reasons unlisted shares become available to buy: employees who have exercised often sell in the secondary market for liquidity before an IPO. As a buyer, ESOP-origin shares are perfectly legitimate, but you should confirm the shares are fully vested and exercised (not just granted).
Example: An early employee exercised vested options at ₹10 and sold to a pre-IPO investor at ₹300, realising years of equity upside. Note the tax: exercising triggers a perquisite charge — see tax on ESOP buyback in India.