Sweat Equity Shares Companies Act 2013

Introduction

Numerous businesses shares their appreciation for staff members by giving them various forms of recognition, which encourages employees to contribute more to the company’s growth.

One such incentive that a firm may offer to its directors or workers at a discounted cost is sweat equity shares, which are given in exchange for anything other than cash.

Sweat Equity Shares In Company Law and its Features

The following characteristics apply to sweat equity shares :

1. Given to staff members, executives, or consultants who have helped the business expand and flourish.
2. Supplied without payment or at a reduced cost.
3. It can only be granted following the company’s incorporation and for a minimum of one year.
4. Cannot be granted for more than 15% of the company’s current paid-up share capital.
5. It is only valid for up to Rs. 5 crores in a given fiscal year.
6. It cannot be sold or transferred for three years after the date of issuance.
7. Must be retained for a minimum of three years from the issue date.
8. Within 30 days following the issuing of the sweat equity shares companies act 2013, submit a form to the ROC.

Lock-in time

A three-year lock-in period must apply to sweat equity shares awarded to directors or employees after the date of allotment.

The employee or director who received the shares is not permitted to sell or transfer them during the lock-in period.

Duration of vesting

The time frame after which employees or directors are qualified to receive sweat equity shares is known as the vesting period, and it must be specified in the sweat equity share scheme.

After the date of the share grant, the vesting term cannot be shorter than a year nor longer than five years.

Additional important notes

The total number of sweat equity shares in company law issued in a given year cannot exceed 15% of the company’s paid-up share capital or shares valued at Rs. 5 crores, whichever is higher. 

More than 10% of the company’s issued and paid-up equity share capital may not be issued in sweat equity shares.

The SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, must be complied with by the Sweat Equity Share Plan.

Sweat Equity Shares In Company Law Benefits

Shares of sweat equity are beneficial to the company and the consultants, directors, or workers who get them in a number of ways. These benefits include:

1. Aids in attracting and keeping talent: Offering sweat equity shares to bright directors, workers, or consultants who play a key role in the expansion and development of the business is a terrific approach to draw and keep their attention.
2. Cost-effective method of remuneration: Giving employees, directors, or consultants sweat equity shares companies act 2013, is a cost-effective compensation strategy. They are given out at a reduced cost or in exchange for no consideration, and they don’t require any financial outflow from the business.
3. Ensures that employee interests are in line with the company’s: The interests of consultants, directors, and workers are aligned with the company’s through sweat equity shares. This motivates people to contribute to the expansion and advancement of the business.
4. Boosts shareholder value: The company’s value to its investors is increased by sweat equity shares companies act 2013,. This is due to the fact that consultants, directors, and staff who get sweat equity shares have a stake in the business’s success.

Directors and staff members who have worked for a company for a minimum of one year, whether in India or abroad, may be granted sweat equity shares. 

Before granting sweat equity shares to directors or staff, companies must make sure that all applicable laws and rules are followed.

If you’re looking to register a Section 8 Company, Public Limited Company, or Private Limited Company, or need assistance with checking company name availability, reach out to Lawgical Adda for expert support. Focus on what you do the best! Let Lawgical Adda handle the rest. Contact us today!

Lawgical Adda’s solution provides end-to-end management of corporate governance and secretarial compliances, encompassing every phase of the entity life cycle.