Explain the Sweat Equity Shares.

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

According to Section 54, a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled,

  • The issue is authorized by a special resolution passed by the company;
  • 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;
  • At least one year should have elapsed, at the date of such issue, since the date on which the company had commenced business; and
  • Where the equity shares of the company are listed on a recognized stock exchange, the sweat equity shares should be issued in accordance with the regulations made by 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.

The rights, limitations, restrictions and provisions which are applicable to equity shares shall he applicable to the sweat equity shares issued under this section and the holder of such shares shall rank with other equity shareholders.

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