Issues of sweat equity shares
📚 Law Minded summary
Sweat equity shares are issued to directors or employees for what they have contributed rather than for cash — know-how, intellectual property, or value they have added.
They are the one ordinary exception to the ban on issuing shares at a discount. The issue needs a special resolution stating the number, the price, the consideration and who gets them, and the shares carry the same rights as ordinary equity.
(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; 1* * * * *
(d) where the equity shares of the compan y 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.