Quick Summary
Sweat Equity Shares are issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights.
Sweat Equity Shares are governed by Section 54 of the Companies Act, 2013 and SEBI (Issue of Sweat Equity) Regulations, 2002 (for listed companies). These shares are issued to employees/directors in recognition of their contribution in form of IP or value addition.
Conditions
- Company must be in operation for at least 1 year
- Special Resolution required
- Resolution valid for 12 months
- Valuation by registered valuer
- Listed companies need to comply with SEBI regulations
Limits
- Listed companies: 15% of paid-up capital in a year or 5 crores (whichever is higher), total not exceeding 25%
- Unlisted companies: Not more than 15% of paid-up capital or shares of value ₹5 crores, whichever is higher
- To a single employee: Cannot exceed 1% of paid-up capital per year
Lock-in Period
- 3 years from date of allotment
- "Sweat Equity Shares" must be stamped on certificate
Difference from ESOP
- Sweat Equity: Issued for past contribution (IP, know-how)
- ESOP: Right to buy shares at future date for future performance
- Sweat Equity issued immediately, ESOP vests over time
Key Points
- For IP/know-how contribution
- Issued at discount or non-cash
- Company must be 1+ years old
- 3 year lock-in period
- Requires Special Resolution