Question

Write a short note on Sweat Equity Shares.

Answer 1

Sweat equity shares, issued under Section 79(A) of the Companies Act, 1956, reward employees and directors for valuable contributions beyond financial investments. Shares are issued at a discount in exchange for know how or intellectual property rights, rather than cash.

To ensure transparency and fairness, sweat equity shares must meet specific standards. They must be part of the company's existing share class to be eligible. For the company to be considered stable and operationally viable, it must have been in business for at least one year. To issue sweat equity shares, a special resolution must be approved by shareholders after careful consideration. Compliance with SEBI laws is crucial for maintaining regulatory standards and investor confidence.

Sweat equity shares have a lock-in term, which prevents holders from reselling them for up to three years. This provision guarantees that recipients prioritise the company's long-term development and align their interests with those of shareholders.