DOCTRINE OF SWEAT EQUITY SHARES

There are restricted ways in which committed company employees can be compensated or remunerated through the issuance of shares under the Companies Act, 2013 ('Act'). The company's problem of sweat equity shares is one other way to compensate or remunerate certain workers. 'Sweat equity shares' are described in Section 2(88) of the Act as equity shares issued by a company to its directors or employees at a discount or for consideration, other than cash, for the provision of their know-how or the making available of rights like intellectual property rights or value-added rights, by whatever name. There is a reference to the term 'value adds' in the concept of sweat equity. It means real or expected economic advantages obtained or decided by the organization from an expert or a specialist for the provision by such an employee of know-how or the making available of rights in the form of intellectual property rights.
It is interesting to note the sweat equity securities are subject to the rights, limitations, and restrictions common to equity shares. The holders of sweat equity shares shall rank pari passu with other equity shareholders.

LEGAL PROVISIONS RELATING TO SWEAT EQUITY SHARES

Section 54 of the COIR Battles Act, 2013 provides for the issue of sweat equity shares subject to fulfillment of the following conditions:

1. Sweat Equity issues should be authorized by a special resolution.
2. The resolution should contain information about the number of shares, the current market value of the shares, consideration, and the class of employees or directors to whom the shares are being issued.
3. The special resolution has to act within 12 months of passing otherwise it will be rendered invalid and a fresh resolution has to be passed again.
4. Sweat Equity shares shall be issued following the SEBI regulations.
5. The rights, limitations, restrictions, and provisions which apply to equity shares shall also be applicable to sweat equity shares.
6. The sweat equity shares which are issued to directors and employees shall be locked in and is non-transferable for three years. The non-transferability of the shares shall be mentioned in bold on the share certificate.
Further, Rule 8 of Companies (Share Capital and Debenture) Rules, 2014 specifies that for more than 15 percent of the current paid-up equity share capital or shares of the value of 5 crores, whichever is higher, a company does not issue sweat equity shares, rich relay did not exceed 25 percent of the company's paid-up equity capital. Start-ups may issue up to 50 percent of their paid-up share capital of sweat equity shares up to 5 years from the date of incorporation.
The sweat equity shares to be issued call be priced at the price set as a fair price by the registered var. To decide the fair price, the registered value is also needed to justify. For the valuation of intellectual property rights or know-how or value adds to the issue of sweat equity securities, a licensed valuer must be named. A report shall be provided to the board of directors by the valuer, along with reasons for such valuation. Shareholders will also be sent the gist of the essential elements of the study.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.