Item: Procedure For Issue of Sweat Equity Shares
Author: Muhammed Fasil K

As per the provisions of Section 54(1) of the Companies Act 2013 Notwithstanding anything contained in section 53, a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled, namely:—

(a) the issue is authorised by a special resolution passed by the company;

(b) the resolution specifies the number of shares, the current market price, consideration, if any, and the class or classes of directors or employees to whom such equity shares are to be issued;

(c) not less than one year has, at the date of such issue, elapsed since the date on which the company had commenced business; and

(d) where the equity shares of the company are listed on a recognised stock exchange, the sweat equity shares are issued in accordance with the regulations made by the Securities and Exchange Board in this behalf and if they are not so listed, the sweat equity shares are issued in accordance with such rules as may be prescribed.

Procedure For Issue of Sweat Equity Shares

1. Convene a Board Meeting after giving notice to the directors to consider the proposal of issue of Sweat Equity Shares and to fix up the date, time, place and agenda for the General Meeting and to pass a Special Resolution for the same.

2. Hold and convene the general meeting after giving notice to the members in which authorization shall be passed by the members by passing a special resolution.

3. The explanatory statement to be annexed to notice shall contain the following particulars:

(a) the date of the Board meeting at which the proposal for issue of sweat equity shares was approved;

(b) The reasons or justification for the issue;

(d) The total number of shares to be issued as sweat equity;

(e) The class or classes of directors or employees to whom such equity shares are to be issued;

(f) The principal terms and conditions on which sweat equity shares are to be issued, including basis of valuation;

(g) The time period of association of such person with the company;

(h) The names of the directors or employees to whom the sweat equity shares will be issued and their relationship with the promoter or/and Key Managerial Personnel;

(i) The price at which the sweat equity shares are proposed to be issued;

(j) The consideration including consideration other than cash, if any to be received for the sweat equity;

(k) The ceiling on managerial remuneration, if any, be breached by issuance of such sweat equity and how it is proposed to be dealt with;

(l) a statement to the effect that the company shall conform to the applicable accounting standards; and

(m)Diluted Earnings Per Share pursuant to the issue of sweat equity shares, calculated in accordance with the applicable accounting standards.

4. The valuation report shall be sent to the shareholders with the notice of general meeting.

5. File the special resolution with the concerned ROC along with explanatory statement in Form MGT. 14 within 30 days of passing of the special resolution.

6. File E-form MGT-14 with registrar of companies for the purpose of filing resolution passed by board of Directors pursuant to Section 179(3).

7. In case of listed company, then forward three copies of the notice and a copy of the proceedings of the general meeting.

8. File a return of allotment in Form PAS.3 with the Registrar of Companies within 30 days of allotment.

9. Maintain a Register of Sweat Equity Shares in Form No.SH-3 and enter therein the particulars of Sweat Equity Shares issued.

10. Deliver duly stamped Share Certificate in form SH-1 with in 2 months from the date of allotment of shares.

11. If the shares of the company are listed, the Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002 to be followed along with the above mentioned procedure.

12. Where the securities are dealt with in a depository , intimate the details of allotment of shares to the Depository immediately on allotment of such shares.

13. The Board of Directors shall disclose the following details of issue of sweat equity shares in the Director's Report for the year in which shares are issued-

(a) the class of director or employee to whom sweat equity shares were issued;

(b) the class of shares issued as Sweat Equity Shares;

(c) the number of sweat equity shares issued to the directors, key managerial personnel or other employees showing separately the number of such shares issued to them , if any, for consideration other than cash and the individual names of allottees holding one percent or more of the issued share capital;

(d) the reasons or justification for the issue;

(e) the principal terms and conditions for issue of sweat equity shares, including pricing formula;

(f) the total number of shares arising as a result of issue of sweat equity shares;

(g) the percentage of the sweat equity shares of the total post issued and paid up share capital;

(h) the consideration (including consideration other than cash) received or benefit accrued to the company from the issue of sweat equity shares;

(i) the diluted Earnings Per Share (EPS) pursuant to issuance of sweat equity shares.

E-book on draft resolutions and procedures

Procedure For Issue of Sweat Equity Shares

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