Sweat Equity Shares

I.  INTRODUCTION

The equity shares which are issued by the company to the directors and employees of the company are known as sweat equity shares.[1] These are the equity shares which are issued on the discount or for the consideration and making the rights available in the nature.[2]

The issue of the Sweat equity shares allows the company in retaining the employee by awarding them their services.[3] This has been stated under section 54 of the Companies Act, 2013.[4] Through sweat equity shares the beneficiaries are awarded as there is the development of the company.[5] This results in the greater employer rate and in the growth of organisation as this encourages the employees to contribute more in the company because they have a stake.[6]

II. DEFINITIONS

 I. SWEAT EQUITY SHARES

 As per Section 2(88)[7] of the Companies Act,  2013 sweat equity shares are the shares which are issued by company to its directors or employee is at a discount are for the consideration.[8] These are not stored in the terms of cash but these are used for providing the rights available under the nature of intellectual property.[9]

 II. EMPLOYEE

 As per rule 8(1) of the company’s share capital and debentures rules 2014 employee means

“(a) permanent employee of the company who has been working in India or outside India, for at least last one year; or

(b) A director of the company, whether a whole time director or not; or

(c) An employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India or outside India, or of a holding company of the company”.[10]

As for this rule the definition of employee can be stated open an employee of a company that has been working in India or outside India for at least 1 year and employee can also includes a director it can be a whole time director or not who has been working in India or outside India or holder company of the company.[11]

 III. VALUE ADDITIONS

 As per rule one of the company share, capital and debentures rule 2014 an employee has an actual and anticipated economic benefits under an expert to provide knowledge to whom to issue sweat equity shares.[12] Under value additions the actual are anticipated economic benefits are derived by the company.[13]

IV. CONDITIONS FOR ISSUE

 There are conditions which has been set up for issuing of sweat equity shares under rule 8 of companies, shares and debentures rules 2014-

  1. There shall be a valid issue of the equity shares so that when the allotment is being made within a period of time it should not face any difficulty and should be done within 12 months from the date of passing of the special resolution.[14]
  2. The special resolution specifies the number of shares the current market price and the consideration and it may include the class for the classes of directors of the companies today’s equity shares have been issued.[15]
  3. While issuing the Sweat equity shares the employees should be locked in non transfer label period for 3 years from the date of allotment.

The Sweat equity shares are issued with the regulations made under securities and exchange board. If these regulations are not obeyed then sweat equity shares will not be issued and not be listed with the company share capital and debenture rules 2014.[16]

[1] Indiafilings, Issue Sweat Equity SharesIssue Sweat Equity Shares (2016), https://www.indiafilings.com/learn/issue-sweat-equity-shares/ (last visited Apr 6, 2017).

[2] Id.

[3] Admin, SWEAT EQUITY SHARES As per Companies Act, 2013 (2016), http://taxguru.in/company-law/sweat-equity-shares-per-companies-act-2013.html (last visited Apr 6, 2017).

[4] Section 54 of Companies Act, 2013
 Issue of sweat equity shares.
1.  Notwithstanding anything contained in section 53, a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled, namely:—
a.  The issue is authorised by a special resolution passed by the company;
b. the resolution specifies the number of shares, the current market price, consideration, if any, and the class or classes of directors or employees to whom such equity shares are to be issued;
c. Not less than one year has, at the date of such issue, elapsed since the date on which the company had commenced business; and
d. Where the equity shares of the company are listed on a recognised stock exchange, the sweat equity shares are issued in accordance with the regulations made by the Securities and Exchange Board in this behalf and if they are not so listed, the sweat equity shares are issued in accordance with such rules as may be prescribed.
2. The rights, limitations, restrictions and provisions as are for the time being applicable to equity shares shall be applicable to the sweat equity shares issued under this section and the holders of such shares shall rank pari passu with other equity shareholders.

[5] Section 54 of Companies Act, 2013, (2016), http://www.companiesact.org/2016/04/section-54-of-companies-act-2013.html (last visited Apr 6, 2017).

[6] Section 54 of Companies Act, 2013, , , https://www.corporate-cases.com/2016/11/section-54-of-companies-act-2013-issue-of-sweat-equity-shares.html (last visited Apr 6, 2017).

[7] Sweat Equity Shares” means such equity shares as 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.

[8] Id.

[9] Akshay Vernekar, ISSUE OF SWEAT EQUITY SHARES UNDER THE ACT OF 2013 (2016), https://www.linkedin.com/pulse/issue-sweat-equity-shares-under-act-2013-akshay-vernekar (last visited Apr 6, 2017).

[10] Companies Act, 2013, Complete Act – Bare Act, , https://www.legalcrystal.com/act/63265/companies-act-2013-complete-act (last visited Apr 6, 2017).

[11] Lokesh Sharma, Sweat Equity Shares (2016), https://www.quickcompany.in/articles/sweat-equity-shares (last visited Apr 6, 2017).

[12] Supra note 9.

[13] Id.

[14] Law Gyaan, Procedure to issue Sweat Equity Shares under Companies Act 2013 (2017), http://lawgyaan.in/procedure-issue-sweat-equity-shares-companies-act-2013/ (last visited Apr 6, 2017).

[15] Indiafilings, Issue Sweat Equity SharesIssue Sweat Equity Shares (2016), https://www.indiafilings.com/learn/issue-sweat-equity-shares/ (last visited Apr 6, 2017).

[16] Admin, SWEAT EQUITY SHARES As per Companies Act, 2013 (2016), http://taxguru.in/company-law/sweat-equity-shares-per-companies-act-2013.html (last visited Apr 6, 2017).

 

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