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
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.
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