Issuance of Equity Shares Through Sweat Equity

Issuance of Equity Shares Through Sweat Equity

What is sweat equity shares under the Companies Act, 2013?  Important Points while issuing Sweat Equity Shares, Disclosures to be made in the board of directors. sweat equity shares are issued and Provisions and procedures relating to the issue of sweat equity shares for Both Public and Private Limited Companies.

Introduction:

Sweat equity shares refer to equity shares given to the company’s employees on favorable terms, in recognition of their work. Sweat equity shares are one of the modes of making share-based payments to employees of the company. Sweat equity shares enable greater employee stake and interest in the growth of an organization as it encourages the employees to contribute more towards the company in which they feel they have a stake.

Definition of Sweat Equity Shares :

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 

(i) Employee means—

(a) a permanent employee of the company who has been working in India or outside India; or

(b) a director of the company, whether a whole-time director or not.

(ii) Value additions mean actual or anticipated economic benefits derived or to be derived by the company from an expert and/or a professional for providing know-how or making available rights in the nature of intellectual property rights

Important Points while issuing Sweat Equity Shares:

Article of association authorizes for issuance of sweat equity shares, if the article of the association has no provisions, then first alter the articles of association to include the provisions for issue of sweat equity shares.

Sweat equity shares in a year are issued up to 15% of existing paid-up capital or shares of issue value of Rs. 5 crores, whichever is higher.

Sweat equity shares are issued to directors or employees with a locked-in and non-transferable for a period of 3 years from the date of allotment.

the consideration (including consideration other than cash) received or benefit accrued to the company from the issue of sweat equity shares;

• Prepare a notice of board meeting along with draft resolution(s) to be passed in the board meeting.
• Send notice of board meeting to all the directors at least 7 days before the date of a board meeting or in such manner as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of the Secretarial Standard-1.
• Convene board meeting within 12 months of the passing of the special resolution and to pass the resolution for the Allotment of shares.
• Authorize to sign and issue the share certificates and other documents, etc.

 In the case of Private Limited Companies:

Prepare a share certificate and get them stamped.

Issue share certificate to the respective allottees within two months from the date of allotment of shares as per section 46 of the Act and Rule 5 of the Companies

       In the case of Public Limited Companies:

Prepare Corporate Excel Form in respect of allotment of securities and submit the same to the Depository and to Registrar to the issue of the company.
Receive confirmation from the Registrar to the issue that it has credited securities in Demat account of all the allottee within 60 days of allotment.