what are sweat equity shares ?

Sweat Equity Shares are the equity shares issued by the company to its employees or directors at a discount or for a consideration other than cash for providing know how or making available rights in the nature of intellectual property rights (IPR) or value additions, by whatever name called. Section 79A of the Companies Act, 1956 permits a company to issue sweat equity shares of a company subject to the guidelines to be issued in this regard.

Dear Friend, **1) Meaning and concept**- Sweat equity shares” means such equity shares, which 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 or value additions, by whatever name called. **2) Definition:-** A) Employee means – (a) a permanent employee of the company who has been working in India or outside India, for at least the last one year; or (b) a director of the company, whether a whole time director or not; or (c) an employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India or outside India, or of a holding company of the company B) Value addition Means- Value additions means 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, by such person to whom sweat equity is being issued for which the consideration is not paid or included in- (a) the normal remuneration payable under the contract of employment, in the case of an employee; and/or (b) monetary consideration payable under any other contract, in the case of non-employee. **3) CONDITIONS AND PROCEDURE FOR ISSUING SWEAT EQUITY SHARES [SECTION 54]** **Conditions:** A company can issue sweat equity shares only of a class of shares already issued subject to fulfillment of conditions prescribed below: General meeting and Special Resolution --The special resolution should be acted upon within a period of 12 months from the date of passing else it will become invalid and a fresh resolution will have to be passed again. --The explanatory statement to be annexed to the notice calling the general meeting must contain details as specified in the Checklist and Procedure stated below. --Limit on quantum of issue --The company shall not issue sweat equity shares for more than 15% of the existing paid up equity share capital in a year or shares of the issue value of Rs. 5 crores, whichever is higher. --The issuance of sweat equity shares in the Company shall not exceed 25% of the paid up equity capital of the Company at any time. --Pricing and valuation The sweat equity shares to be issued shall be valued at a price determined by a registered valuer as the fair price giving justification for such valuation. The valuation of intellectual property rights or of know how or value additions for which sweat equity shares are to be issued, shall be carried out by a registered valuer, who shall provide a proper report addressed to the Board of directors with justification for such valuation. Disclosure in Board Report – Details regarding the sweat equity issue need to be disclosed in the Board’s Report of the year in which issue is made. The details to be disclosed are stated in the procedure below.

Issue of sweat equity shares for a private company used to be regulated by Section 79A and Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003 under Companies Act, 1956. Now the same is regulated by Section 54 and Chapter 4 under Companies Act, 2013. “Sweat equity shares” means such equity shares, which 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 or value additions, by whatever name called.

As per Section2(88) of Companies Act, 2013, Sweat Equity Shares are equity share that are issued by a company to its emplyees or directors at a discount or for a 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. A company other than a listed company cannot issue sweat equity shares until the issue is authorised by a **Special Resolution in a General meeting**.

“Sweat equity shares” means equity shares 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 or value additions, by whatever name called. They are the rewards which is given to the hardworking employees. It is named as sweat equity shares because it is the reward for the sweat of the hardworking employees in the organisation . Thanks

Hiii friend.... SWEAT EQUITY SHARES ------------------- **Sweat Equity Shares** are the equity shares issued by the company to its employees or directors at a discount or for a consideration other than cash for providing know how or making available rights in the nature of intellectual property rights (IPR) or value additions, by whatever name called. Section 79A of the Companies Act, 1956 permits a company to issue sweat equity shares of a company subject to the guidelines to be issued in this regard. - Sweat equity shares are basically given to a company’s employees on favourable terms, in recognition of their work. It usually takes the form of giving options to employees to buy shares of the company, so they become part owners and participate in the profits, apart from salary. Basically when a startup company forms it engages the best talent/employees, who bring in their IPR and know-how, skills and expertise with them, which eventually makes value addition for the company. Such employees are awarded with Sweat Equity as an incentive to join and stick to the company.

Dear Uma, “Sweat equity shares” means such equity shares, which 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 or value additions, by whatever name called. The issue of sweat equity shares should be authorised by a special resolution passed by the company in a general meeting The resolution should specify the number of shares, current market price, consideration, if any, and the section of directors /employees to whom they are to be issued As on the date of issue, a year should have elapsed since the company was entitled to commence business. Any other query feel free to contact us Writer CA Chitranjan Agarwal