The question is asked a lot, if an Indian company can issue sweat equity. There are separate rules for sweat equity in a private company in India and a public company in India.

 

Sweat Equity in a private company in India

The provisions for issue of Sweat Equity are covered under Section 79A of the Companies Act. It provides that a company may issue sweat equity shares of a class of shares already issued if the following conditions are fulfilled:

  • the issue of sweat equity shares in authorized by a special resolution passed by the company in the general meeting.
  • 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.
  • not less than one year has, at the issue elapsed since the date on which the company was entitled to commence business.
  • The sweat equity shares of a company whose equity shares are listed on a recognized stock exchange are issued in accordance with the regulations made by the Securities and Exchange Board of India in this behalf.
  • In view of the above provisions, you can’t issue Sweat Equity at the time of incorporation of your Company as one year has not elapsed since the date on which the company was entitled to commence business.

In addition to the above provision, other regulatory provisions are applicable for issuing sweat equity shares for a private company in India. Please feel free to Contact us for further information about sweat equity in an Indian company.

Sweat Equity in a public company in India

The aforesaid provisions regarding issuing of Sweat Equity under Section 79A of the Companies Act are applicable to a public company in India.

The sweat equity shares of a company whose equity shares are listed on a recognized stock exchange are issued in accordance with the Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002.

Contact