Sweat Equity Shares

Q. Explain in brief Sweat Equity Shares.

Sweat equity shares means equity shares issued by the company to its employees or directors at a discount or consideration other than cash for providing know-how or making available intellectual property rights. According to section 54 of Companies Act, 2013, a Company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled:

(i) the issue of sweat equity shares is authorised by a special resolution passed by the company in general meeting.

(ii) the resolution specifies the number of shares, current market price, the consideration, if any, and the class or classes of directors or employees to whom such equity shares are proposed to be issued.

(iii) not less than one year elapsed since the date on which the Company was entitled to commence business.

(iv) the sweat equity shares of a Company whose equity shares are listed on recognised stock exchange, are issued in accordance with the regulations made by the SEBI in this behalf.

(v) such shares cannot be resold by their holders within a period of three years called lock-in period.

It is to be noted that a company may issue sweat equity shares at a price lower than than the nominal value of equity shares.

The entries for issue of sweat equity shares are same as for issue of other equity shares.