The equity shares issued by a company directly to their directors and employees at a relatively higher discount for the availability of certain intellectual rights of its property (Copyright, trademark, other value addition) is known as the Sweat equity shares. These are allotted by passing a special resolution along with a comprehensive statement. However, these equity shares consist of several restrictions.
This article provides detailed information about these restrictions.
Sweat Equity Restrictions on Recipient
- A permanent employee working for at least the last year with the company in India or outside the country can only be allotted the equity shares.
- Whole-time or part-time director of the company can be allotted these equity shares.
- The person allotted with these shares should furnish considerable addition of value to the company.
Restrictions on Issue
- The shares must be issued by passing a special resolution by the company.
- The validity of the passed special resolution for governing the issue of equity shares should be for one year from the date of enacting the resolution.
- All the equity shareholders should be enforced with the same rights, limitations, restrictions and provisions as of the sweat equity shareholders.
- The price of the these equity shares must be regulated by the registered valuer providing justification for fair value.
- The issued sweat equity shares having a valuation of intellectual property rights or addition of value must be enacted by the valuer who is registered and responsible to provide with accurate report subjected to the Board of Directors with proper reasons for such valuation.
Pre and Post issue – Restrictions
- Issued sweat equity shares has to be locked-in and should be non-transferable from the date it was issued till the next three years.
- A company can issue only 15% of the paid-up equity share capital or shares having value of Rs.5 crore (whichever is higher) in a financial year.
- The company cannot exceed more than 25% of the paid-up equity capital for issuing the sweat equity shares anytime.
- The company must maintain the register containing the records of issued shares at the registered office.
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