What is Sweat Equity?

Sweat Equity Shares means equity shares issued by a company to its director or employee at discount or for consideration other than cash, for providing know-how or making available like intellectual property rights or value addition.

Who is Eligible?

  • Permanent employee of the Company;
  • Permanent employee of the subsidiary or a holding company
  • Director of the company

Business concept about Sweat Equity with phrase on the sheet

How many Sweat Equity Shares can a Company issue?

The company can issue sweat equity shares up to the higher of two:

  • 15% of existing paid-up share capital) or
  • INR 5 Crore

Also, the sweat equity shares shouldn’t go beyond 25% of the paid-up equity capital of the issuing company at any point in time.

Explanation this 25% condition is for once in life time i.e. the quantum of sweat equity shares in the paid-up capital of the Company should not go beyond 25 %

Exception: for startups, they are allowed to issue up to 50% of the paid-up capital within 5 years from the date of registration or incorporation.

What are the Conditions?

  • lock-in period of three years and non-transferable shares;
  • to be allotted within the 12 months from the date of passing resolution
  • Amount of sweat equity shares can be treated as managerial remuneration if it fulfills the following condition:

a. It is issued to the director or manager

b. They are issued for non-cash consideration

At What Price?

The price of an issue shall be the value based on the price determined by a registered valuer as to the fair price. He shall justify reaching a certain value. The registered valuer shall carry the valuation of

  • Know-how
  • Intellectual property rights
  • Value addition for the sweat equity.


Disclaimer: The information contained herein is not intended to be a source of advice and it is only for the convenience of the user. The contents of this article have been prepared in accordance with the relevant provisions and information available at the time of preparation and the views and opinions expressed in this article are those of the author’s understandings. The author does not have any responsibility/liability of the same and the article cannot be quoted without the consent of the author.

Author Bio

Qualification: CS
Company: Fine Jewellery Manufacturing Limited
Location: Mumbai, Maharashtra, India
Member Since: 20 Jun 2019 | Total Posts: 2
I am a Qualified Company Secretary working with one of the leading Jewellery Company based in Mumbai. I also share my experience on my YouTube Channel (CS Priya Pal) & helps Budding CS Professionals with their preparations. View Full Profile

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September 2021