Issue of Sweat Equity Shares

The Companies (Amendment) Act, 1999 recognised that in the wake of globalisation of corporate sector, the employees will have to be rewarded suitably to share in the growth of company. By insertion of section 79A, the employees may be compensated in the form of “sweat equity shares”. As per explanation to section 79A, the expression “sweat equity shares” means equity shares issued by the company to employees or directors at a discount or for consideration other than cash for providing know-how or making available right in the nature of intellectual property rights or value additions, by whatever name called. The auditor may see that the sweat equity shares issued by the company are of a class of shares already issued and following conditions are fulfilled :

  1.  The issue of sweat equity shares is authorised by a special resolution passed by the company in the general meeting;
  2.  The resolution specifies the number of shares, current market price, consideration, if any, and the class or classes of directors or employees to whom such equity shares are to be issued;
  3.  Not less than one year has, at the date of the issue elapsed since the date on which the company was entitled to commence business;
  4.  The sweat equity shares of a company whose equity shares are listed on a recognised stock exchange are issued in accordance with the regulations made by the Securities Exchange Board of India in this behalf:

Provided that in the case of a company whose equity shares are not listed on any recognised stock exchange, the sweat equity shares are issued in accordance with the guidelines as may be prescribed. For the purposes of this sub-section, the expression “a company” means the company incorporated,
formed and registered under this Act and includes its subsidiary company incorporated in a country outside India.

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