ISSUUANCE OF EQUITY SHARES THROUGH SWEAT EQUITY

Introduction- What is sweat equity shares?

Sweat equity shares refers to equity shares given to the company’s employees on favorable terms, in recognition of their work. Sweat equity shares is one of the modes of making share based payments to employees of the company. The issue of sweat equity shares allows the company to retain the employees by rewarding them for their services. Sweat equity shares rewards the beneficiaries by giving them incentives in lieu of their contribution towards the development of the company. Further, Sweat equity shares enables greater employee stake and interest in the growth of an organization as it encourages the employees to contribute more towards the company in which they feel they have a stake.

DEFINITION

As per section 2(88) of the Companies Act, 2013 Sweat Equity Shares means such equity shares as 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 Explanation to Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014 amended by the Companies (Share Capital and Debentures) Second Amendment Rules, 2018, w.e.f. 7-5-2018 provides that for the purposes of section 54 and this rule,

(i) Employee means—

(a) a permanent employee of the company who has been working in India or outside India; 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.

(ii) 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 the normal remuneration payable under the contract of employment, in the case of an employee.

What are the conditions for  issuance of sweat equity shares?

According to section 54, 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, consideration, if any, and the class(es) of directors or employees to whom such equity shares are to be issued

    iii.            Omitted by the Companies (Amendment) Act, 2017, w.e.f. 7-5-2018, vide Notification No. SO 1833(E), dated 7-5-2018.

    iv.            where the equity shares of the company are listed on a recognised stock exchange, the sweat equity shares are issued in accordance with the regulations made by the SEBI in this behalf and if they are not so listed, the sweat equity shares are issued in accordance with such rules as may be prescribed.

Important Points while issuing Sweat Equity Shares:-

·         Every unlisted public company making any offer for issue of any securities, before making such offer has dematerialized of its securities held by its promoters, directors, key managerial personnel in accordance with provisions of the Depositories Act, 1996 and regulations made there under.

·         Who subscribes to any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer) on or after 2nd October, 2018 shall ensure that all his existing securities are held in dematerialized form before such subscription.

·         Article of association authorizes for issuance of sweat equity shares, if the article of association have no provisions, then first alter the articles of association to include the provisions for issue of sweat equity shares.

·         Whether authorized capital is sufficient for issue of sweat equity shares, and if authorised capital is not enough, then first alter the capital of company by altering of Capital Clause of the Memorandum of Association.

·         Sweat equity shares in a year are issued upto 15% of existing paid up capital or shares of issue value of Rs. 5 crores, whichever is higher.

·         Sweat equity shares by a start-up company are issued upto 50% of paid up capital upto 5 years from the date of incorporation.

·         Sweat equity shares are issued to directors or employees with a locked-in and non-transferable for a period of 3 years from the date of allotment.

·         The valuation of intellectual property rights or of know how or the 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.

·         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.

 

·         Sweat equity shares issued to directors or manager for consideration other than cash are treated as managerial remuneration for the purposes of section 197 and section 198 of the Companies Act, 2013.

Make following disclosures in the board of directors report of the year in which sweat equity shares are issued:

·         the class of director or employee to whom sweat equity shares were issued;

·         the class of shares issued as Sweat Equity Shares;

·         the number of sweat equity shares issued to the directors, key managerial personnel or other employees showing separately the number of such shares issued to them, if any, for consideration other than cash and the individual names of allottees holding one percent or more of the issued share capital;

·         the reasons or justification for the issue;

·         the principal terms and conditions for issue of sweat equity shares, including pricing formula;

·         the total number of shares arising as a result of issue of sweat equity shares;

·         the percentage of the sweat equity shares of the total post issued and paid up share capital;

·         the consideration (including consideration other than cash) received or benefit accrued to the company from the issue of sweat equity shares;

·         the diluted Earnings Per Share (EPS) pursuant to issuance of sweat equity shares.

The provisions and procedures relating to issue of sweat equity shares are as follows:

·         Convening Board Meeting of Company and passed the following resolution.

o   Issuance of sweat equity shares.

o   Appointment of Registered Valuer.

o   Authorisation to Director/Company Secretary to sign the documents.

o   Fixing day, date, time and venue for calling general meeting.

o   Approving notice of general meeting for passing special resolution for issuance of sweat equity shares.

·         Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/ registered post/courier/e-mail or by any recognised electronic means, for their comment(s).

·         Convene general meeting and pass special resolution for issue of sweat equity shares.

·         Prepare draft minutes of shareholders’ meeting and for finalization, send the draft minutes to the chairman of that meeting.

·         File eForm MGT-14 with the Registrar of Companies along with attachments for registering special resolution passed in the general meeting.

·         Minutes of the shareholders’ meeting shall be signed and dated by the chairman of that meeting.

 

Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting.

o   Send notice of board meeting to all the directors at least 7 days before the date of board meeting or in such manner as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of the Secretarial Standard-1.

o   Convene board meeting within 12 months of passing of special resolution and to pass resolution for Allotment of shares.

o   Authorise to sign and issue the share certificates and other documents, etc.

·         Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/e-mail or by any recognised electronic means, for their comment(s).

·         Minutes of the board meeting shall be signed and dated by the chairman of that meeting or by the chairman of the next meeting.

·         Prepare list of allottees for filing with the Registrar of Companies.

·         File the e-Form PAS-3 along with attachments with the Registrar of Companies within 30 days of allotment.

 

In case of Private Limited Companies:

·         Prepare share certificate and get them stamped.

·         Issue share certificate to the respective allottees within two months from the date of allotment of shares as per section 46 of the Act and Rule 5 of the Companies (Share Capital and Debentures) Rules, 2014.

·         (Please follow procedure for e-stamping of share certificates)

 

In case of Public Limited Companies:

·         Issue letter of allotment to the allottees and ask them to furnish their demat account details.

·         Prepare Corporate Excel Form in respect of allotment of securities and submit the same to the Depository and to Registrar to the issue of the company.

·         Receive confirmation from the Registrar to the issue that it has credited securities in demat account of all the allottee within 60 days of allotment.

Receive credit advice from the Depository and on the basis of that credit advice, pay stamp duty on the allotted securities. (Please follow procedure for payment of stamp duty on the allotted securities)

Related Post By MyCompanywala

section shape

DETAILED NOTE ON BONUS ISSUE DEFINITION


An issue of bonus shares is referred to as a bonus share issue or bonus issue. A bonus issue is usually based upon the number of shares that shareholders already own. While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company.                              1) The source out...... Read More

ISSUE OF SHARES THROUGH RIGHT ISSUE


DEFINITIONOF RIGHT ISSUE ‘Right Issue’ means offering shares to existing members in proportion to their existing shareholding. The object is, of course, to ensure equitable distribution of Shares and the proportion of voting rights is not affected by issue of Fresh shares. A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This type of issue gives existing shareholders securities called rights. ...... Read More

PROCEDURE FOR REMOVAL OF DIRECTOR


1.        Ensure that a special notice for the removal of a director is furnished by number of members in accordance with the section 115 of Companies Act, 2013 to the company at least 14 days before the meeting at which it is to be moved. 2.        (a) Ensure that the notice for removal of a director is for a director other than a director appointed by the Tribunal under section 242 of the Companies Act, 2013. &n...... Read More

ISSUUANCE OF EQUITY SHARES THROUGH SWEAT EQUITY


Introduction- What is sweat equity shares? Sweat equity shares refers to equity shares given to the company’s employees on favorable terms, in recognition of their work. Sweat equity shares is one of the modes of making share based payments to employees of the company. The issue of sweat equity shares allows the company to retain the employees by rewarding them for their services. Sweat equity shares rewards the beneficiaries by giving them incentives in lieu of their contribution tow...... Read More

PROCEDURE FOR ISSUE OF SHARES THROUGH PRIVATE PLACEMENT


INTRODUCTION Private placement can be explained as a means of raising capital by the companies without going for public issues. Public Issues like Initial Public Offering and Further Public Opening are means of raising capital by the companies. DEFINITION A private placement is a sale of stock shares or bonds to pre-selected investors and institutions rather than on the open market. It is an alternative to an initial public offering (IPO) for a compan...... Read More

OPC has to convert into Private or public limited company within 6 months


post img

 OPC shall be required to convert itself, within six months of the date on which its paid up share capital is increased beyond fifty lakh rupees and the last day of the relevant period during which its average annual turnover exceeds two crore rupees as the case may be, into either a private co...... Read More

Mandatory Conversion of One Person Company into Private Limited or Public Company


post img

Rule 6 of the Companies (Incorporation) Rules, 2014 as amended vide the Companies (Incorporation) Amendment Rules, 2015, w.e.f. 1-5-2015 provides that where the paid up share capital of an OPC exceeds fifty lakh rupees and its average annual turnover during the relevant period exceeds two crore rupe...... Read More

Restriction on alteration in the Memorandum and Articles of a charitable company licensed u/s 8


post img

Section 8(4)(a) provides that a company that has received a licence under the section, shall not alter the provisions of its Memorandum as regards its objects except, with the previous approval of the Central Government [Powers delegated to the Registrar of Companies by Notification No. 1353(E), dat...... Read More

Main condition for Section 8 Company registration


post img

The objective of section 8 of the Companies Act, 2013 is to provide special benefits and privileges to such organisations, which are formed for the following purposes and where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be regist...... Read More

Requirements of minimum paid-up capital


post img

By the Companies (Amendment) Act, 2015 effective from 29th May, 2015 the requirement of minimum paid up capital for a private limited company of `1 Lakh and for a public limited company of `5 Lakhs has been removed from the definition of the Companies under section 2(68) and 2(71) of the Companies A...... Read More

Can OPC Change in the nominee by the member of OPC?


post img

 It has been provided that the subscriber/member of OPC may at any time change the name of the nominated person by giving notice to the Registrar. It shall be the duty of the subscriber/member of OPC to intimate the company the change, if any, in the name of the person nominated by him by in...... Read More

Change in the name of person nominated in the Memorandum shall not be deemed to be alteration in the Memorandum of Association


post img

Any such change in the name of the nominee person in the Memorandum of Association of the OPC shall not be deemed to be an alteration of the memorandum.......

Can we Change in the nominee by the member of OPC?


post img

 It has been provided that the subscriber/member of OPC may at any time change the name of the nominated person by giving notice to the Registrar. It shall be the duty of the subscriber/member of OPC to intimate the company the change, if any, in the name of the person nominated by him by i...... Read More

What are the Liabilities of the subscriber in case of One Person Company?


post img

 The liability of the member of the OPC may be limited or unlimited, and the Memorandum of Association of the OPC shall state,—   (i) in the case of a company limited by shares, that liability of its member is limited to the amount unpaid, if any, on the shares held by them; an...... Read More

No need for address in India of Foreign promoters incorporating company in India


post img

 There is no pre-condition for foreign promoters to furnish local address in India for seeking registration and incorporation of a limited company in India.   It was held that there was nothing in the Act or the applicable Rules which requires the foreign promoters to provide a l...... Read More

Is roll checks are mandatory for Directors inMinistry of Corporate Affairs website


post img

The digital signatures are required to be registered at the website of the MCA for various category like director, professionals, etc. and need to fill up particulars online at the MCA portal, called roll check.   Without complying with the requirement of Roll Check, any documents si...... Read More

What are the liabilities on members for having below minimum members’ strength?


post img

The MCA vide the Companies (Amendment) Act, 2017 has inserted new section 3A w.e.f. 9-2-2018, vide Notification No. SO 630(E), dated 9-2-2018 to put liability on all the existing members of the company, in case the company defaults in minimum number of members’ criteria. If at any time the number ...... Read More

Is Digital Signatures Certificates are mandatory in case of Company registration?


post img

Every Form and return prescribed under the Companies Act, 2013 needs to be filed with the digital signature of the managing director or director or manager or secretary of the Company, therefore, it is compulsorily required to obtain digital signatures of at least one director to digitally sign the ...... Read More

Requirement for Having Director Identification Number


post img

As per proviso to section 152(3) of the Companies Act, 2013 no company shall appoint or re-appoint any individual as director of the company unless he has been allotted a Director Identification Number (DIN) under section 154 or such other identification number as the Central Government may prescrib...... Read More

What our customers are saying about MyCompanywala?

section shape

Copyright © 2018 MYCOMPANYWALA all right reserved.

Hello ! I am Dipesh,Your Consultant from Mycompanywala and I am here to help you.

What are you looking for?

1. Company Incorporation?
2. DOT OSP Registration
3. Trademark Registration?
4. Other Services ?