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Guidelines for Sweat Equity Shares Issue by Unlisted and Private Limited Companies

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In this article, we will discuss about guidelines for Sweat Equity Shares issue by unlisted and private limited Companies:

Sweat Equity Shares: It refers to those equity shares wherein companies have issued their equity shares with discounts and with little consideration option than only cash to directors and employees of the company. In India, the concept of the Sweat Equity shares are started by Infosys, where the company was issuing their shares to their employees for their efforts and work them put in. This can be treated as a reward for employee’s performance. These shares are issued at a discounted rate of the market price. The main objective of the company is to issue these shares for making the employees feel that they are an integral part of their company.

The lock in period of sweat equity shares is 3 years, which is starting from their allotment date. Sweat equity shares can be issued only by passing special resolution in company’s General Meeting.

Well in aforesaid explanation, we have mentioned that Sweat Equity Shares are issued in a general meeting through special resolution. Therefore, here we explain the various provisions, which should be mentioned or discussed in explanatory statement, which is annexed with the special resolution, in the case of unlisted companies. Let us take a look:

1. Meeting date shall be mentioned on which Sweat Equity Shares proposal will announce.

2. The reasons of issuing of Sweat Equity Shares.

3. The numbers of shares, classes of shareholders who will get this opportunity and the amount of consideration of shares.

4. Name of the persons who will get this opportunity and their relationship with company.

5. The market value or actual value of sweat equity shares, at which shares are offered to members of the company.

6. Mention managerial remuneration if it will get affected from issuing of shares.

7. Calculate Earnings per Share as per accounting standards.

8. A statement, which shows that the accounting policies are considered by the company which are specified by the central government.

After mentioning the aforesaid provisions, company must be followed the procedure of issue of Sweat equity shares which are as follow:

1. First of all, company has required for getting approval of shareholder in general meeting by way of resolution, when the share are issued to known employees or promoters.

2. Company has maintained the record for Sweat equity shares in registers & schedule the annexed to the unlisted company’s rules, 2003.

3. Company cannot be issued equity shares greater than 15% of gross paid share capital or more than Rs. 5 crores share values, whichever is higher according to situation. However, company can exempt from this limitation, if they get prior approval by Central Government.

4. The following details should be mentioned in director report or in annexure with Director Report:

(a). Quantity of Equity shares issued to employees, promoters or directors.

(b). Conditions, at which sweat equity shares are issued.

(c.) Pricing formula of valuation of equity shares.

(d) All shares, which are consider as sweat equity shares from equity shares.

(e) Shall be disclosed the amount of consideration.

(f) Calculate EPS (Earnings per Share) as per accounting standards.

5. The fair price shall be calculated by Independent Value of sweat equity shares.

6.  The lock in period of sweat equity shares is 3 years, which is starting from their allotment date.

7. A certificate shall be placed at Annual General Meeting, which is authorised by the auditors or a practising Company Secretary, which states that the resolution of the company is issued according to the provisions of company act rules.

Hope this article about Guidelines for Sweat Equity Shares Issue by Unlisted and Private Limited Companies helped you.

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Prashant Sharma is a Delhi based Entrepreneur who spent most of his college days polishing his marketing skills and went for his first business venture at 19. Having tasted failure in his entrepreneurial debut, he turned a Tech-enthusiast, specializing in web technologies later. Today, he heads Accu-rate Media, a Digital Marketing and Publishing firm and writes at TechnologyNectar as well. Join him on Google Plus

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