What are sweat equity shares?

Question

What are sweat equity shares and what are the conditions of issuing sweat equity shares?

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William 1 year 1 Answer 330 views Silver 0

Answer ( 1 )

  1. Sweat equity shares means equity shares issued by a company to its employees or directors at a discount or for consideration , other than cash for providing know how or making available right in the nature of intellectual property rights or value additions by whatever name called.

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    A company can issue swat equity shares , of class of shares already issued , if following conditions are satisfied :-

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    1.  The issue has been authorized by special resolution passed by the company in general meeting.
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    3.  The followings are clearly specified in the resolution: number of shares , current market price, consideration if any , class or classes of directors to whom such equity shares are to be issued.
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    5. As on the date of issue , at least one year should have elapsed from the date on which company was entitled to commence business.
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    7. A company whose shares are listed on a recognized stock exchange should also have to comply with SEBI (Issue of sweat equity shares) Regulations,2002.
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    9. In case of unlisted company , Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003 should be complied with.
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    Some important point to keep in mind:

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    1. Sweat equity shares are subject to a lock in period of 3 years.
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    3. The special resolution authorizing the issue of sweat equity shares shall be valid for making the allotment within a period of not more than twelve months from the date of passing special resolution.
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    5. The company shall not issue sweat equity shares for more than 15 percent of the existing paid-up equity capital in a year or shares of the issue value of Rs.5 crore whichever is higher.    Provided that the issuance of sweat equity share sin the company shall not exceed 25 percent of the paid-up equity capital at any times.
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    7. The expression employee means:-
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    • A permanent employee of the company who has been working in India or outside India, for at least last 1 year , or
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    • A director of the company , whether a whole time director or not;
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    • An employee or a a director as defined in sub clause (a) or (b) above of a subsidiary , in India or outside India , or of a holding company of the company.
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