Sweat Equity Shares are the shares issued by the company to its employees or directors at a discount or for consideration other than cash. These shares are issued as a reward to the directors and shareholders.
ACCORDING TO COMPANIES ACT 2013
“Sweat equity shares” means such equity shares, which are issued by a Company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.
CONDITIONS FOR ISSUE OF SWEAT EQUITY SHARES
ELIGIBILITY OF THE DIRECTOR OR EMPLOYEE
Such shares can be issued only to
- a permanent employee of the company who has been working in India or outside India, for at least last one year; or
- to a director of the company, whether a whole time director or not; or
- an employee or a director mentioned above of a subsidiary, in India or outside India, or of a holding company of the company
CATEGORY OF SHARES
These shares can be issued only out of that category, the shares of which have also been issued.
Sweat equity shares can be issued only if the business has completed the one year from its commencement.
TIME LIMIT FOR ISSUING SWEAT
Allotment of sweat equity shares shall be made within 12 months from the date of passing special resolution.
AUTHORISATION BY SHAREHOLDERS OR PASSING OF RESOLUTION
The company must pass the special resolution in the general meeting for the issuance of sweat equity shares.
CONTENTS OF SPECIAL RESOLUTION
The special resolution must specify the following:
- Number of shares
- Current market price
- Class of directors or employees to whom such equity shares are to be issued
NOTICE OF GENERAL MEETING
Critical elements of Valuation Report shall be sent along with the Notice. Particulars like class of shares, price, consideration, principal terms of conditions, employees to whom sweat is proposed is required to be mentioned in explanatory statement.
Valuation of sweat shares and intellectual property rights (IPR)/know how/ value additions shall be done by Registered Valuer.
LIMIT ON SWEAT EQUITY
In a year, sweat shares shall not exceed 15% of existing paid up equity share capital or shares having issue value of ₹ 5 crores, whichever is higher. However, it should not exceed 25% of paid up equity capital of Company at any time.
REGISTER OF SWEAT EQUITY SHARES
The details of sweat shares shall be mentioned in this Register. The register shall be maintained at Registered Office or such other place as the Board may decide. The entries shall be authenticated by Company Secretary of the Company or by any other person authorized by Board.