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Issuing sweat equity shares under companies act 2013

Checklist- Issuing sweat equity shares under companies act 2013

‘Sweat equity shares’ are a kind of equity shares, which are issued at a discount or for any consideration to the directors by a Company, other than cash, for giving their skills and making available rights in the nature of intellectual property rights, by whatever name called.

In the present situation, an employee is the key to the achievement of each association and each worker has the right to be compensated for the efforts and endeavours made by them to make the organization successful in the competitive market and the issue of Sweat Equity shares is the most ideal approach to remunerate them. Now through this article, we are trying to brief out the strategy on the best way to begin with the issue of Sweat Equity and the points to remember before issuing the same.

Issuing sweat equity shares under companies act 2013

Procedure for the Issue of Sweat Equity Shares

Differentiate whether the individual is qualified for Sweat Equity or not and for eligibility check the following points:

  • Eligibility for Sweat Equity Shares
  • Permanent employee of the organization who has been working in India or outside India;
  • Director of the organization, regardless of whether a whole-time director or not;

2. Check whether Company is under the budgetary limit of issue of sweat equity shares and for this, these are the following points which have to be checked:  

Restrictions on Issue

For One Time: 15% of the existing paid-up equity share capital in a year or shares of the issue value of Rs. 5,00,00,000 (Rupees Five Crores), whichever is higher.

For Total: 25% of the paid-up equity capital of the Company

3. After the above stages Company shall gather a Board Meeting after complying the vital formalities for assembling the Board Meeting and following items shall be taken in such Board Meeting:

• Issue and accept the issue of Sweat Equity shares;

• Designate the Registered Valuer to get Valuation report;

• Authorization to Directors for Issue of notice for assembing General Meeting for passing Special Resolution.

4. After acquiring the Valuation report issue notice of General gathering and furthermore attach a copy of the valuation report with such notice.

The illustrative explanation to be added to the notice of the general meeting will contain the following points:
(a) date of the Board meeting for issue of sweat equity shares

(b) justification for the issue

(c) class of shares

(d) total number of shares

(e) class of directors to whom shares are to be issued

(f) principal terms and conditions

(g) time period of association of such person

(h) names of the directors and their relationship with the promoter 

(i) price at which the sweat equity shares are to be issued

(j) consideration including consideration other than cash

(k) ceiling on managerial remuneration, if any

(l) statement to the effect, conform to the applicable accounting standards

(m) Diluted EPS is pursuant to the issue of sweat equity shares

5. Have the General meeting & run the special resolution to issue Sweat Equity Shares.

• Time Period for issuing the Sweat Equity Shares- the above SR will be substantial for a time period of 1 year, So Company will make the distribution within 1 year.

Special Resolution will include the following points mentioned below:

• Number of Shares

• Current Market Price

• Class or classes of Directors/Employees to whom such equity shares are to be issued

6. After passing the SR, Company will report the equivalent to the ROC in e-form MGT-14 within 30 days of passing the Special resolution.

7. Organization will gather another Board Meeting for the allotment of said shares and make the said allotment of Sweat Equity shares to the proposed employee.

8. Once the allotment is done, Company will record or file the return of allotment to the ROC in e-form PAS-3 within 30 days from the date of allotment.

9. After the allotment Company will DELIVER the share certificate to the proposed employee within 60 days from the date of allotment. 

10. Register to record the entry:

The Company will make the entry in the following registers:

• Board of Directors will make required entries in the register of individuals within 7 days from the date of allotment;

 • The organization will keep up a Register of Sweat Equity Shares in Form No. SH.3 and will likewise enter in that the basics of Sweat Equity Shares issued under section 54 and the entries in the register will be verified by the Company Secretary (CS) of the organization or by some other individual approved by the Board for the purpose.

11. Installment of Stamp Duty according to the respective state law, each and every Company must compensate the respective stamp duty on the issue of share certificate. Therefore, once the certificate of sweat Equity shares conveyed to the proposed employee, Company will prepare the data and document for payment of stamp duty on the issue of share certificate according to the respective state law and submit the same to the respective department for the payment of stamp duty.

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26 Mar

Shruti Sharma

“An idea can change your life”: Well it’s true! I am glad that India is rising its way towards startup culture. It has literally pushed people to at least give it a try and not just live in a bubble. Being an entrepreneur you need a team and Neusource is there to help you and to raise your startup.