SECURITIES LAWS & CAPITAL MARKETS SWEAT EQUITY SHARES | CS Executive

The term “Sweat Equity Shares” simply means a reward given to employees by way of discount or consideration. Sweat equity shares refer to equity shares given to the company’s employees on favorable terms, in recognition of their work.

SWEAT EQUITY SHARES MEANING

Section 2 (88) of the Companies Act, 2013 defines “Sweat Equity Shares” which 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 like intellectual property rights or value additions, by whatever name called.

It should be noted that the intellectual property right, know-how or value additions arise as of now mainly in the case of Information Technology-related companies and Pharmaceutical companies. Categories of industries that are eligible to issue sweat equity shares have not been indicted by the Government either in the Act or otherwise.

Sweat Equity Shares are 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. Suppose an employee ‘A’ has contributed towards making software for his/her company for the betterment and expansion of the company and as a result of it the company was rescued from paying the cost of the software, he ought to benefit. In this case, due to ‘A’ immense contribution towards the welfare of the company, the Sweat Equity Share is issued in lieu of ‘A’.

From the perspective of the ownership mindset, sweat equity shares enable 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.

Unlike the term sweat equity seems to be more complex but in reality, it is just compliance with requisite provisions to issue sweat equity shares. Let’s understand the key areas in sweat equity shares and their issue to employees and directors.

• REGULATORY FRAMEWORK The Issue of Sweat Equity shares are governed by the following laws:

Listed Company – Companies Act, 2013 and SEBI (Issue Of Sweat Equity) Regulations, 2002

• Unlisted Company – Companies Act, 2013

• UNDER COMPANIES ACT, 2013
• ISSUE OF SWEAT EQUITY SHARES – REGULATIONS UNDER SEBI

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