Corporate bodies, in order to
increase their employee morale and to motivate them are heading towards various
incentives / programmes; these ensure the satisfaction of their employees and
make them more efficient,
One of such motivation tool is Issue of Sweat Equity Shares.
Section 2 (88) of the Companies Act, 2013 (“ACT”) defines "sweat equity
shares" {It means such equity shares as are issued by a company to its
directors or employees at a discount
or for consideration, other than cash, for providing their know-how or making
available rights in the nature of intellectual property rights or value
additions, by whatever name called;}
We all are aware about Section 53 of the act
i.e. Prohibition on Issue of Shares at
Discount, where in general issue of shares on discount is void,
So we can say that, this
issue of Sweat Equity shares (only to Employees and Directors) is exception to
Section 53 and this is regulated by Section 54 of the act,
In Order to Issue Sweat Equity Shares
One Should Check Whether
1. The issue is authorized
by a special resolution passed by the company,
and also ensure that the SR is valid only for 1 Year, so allotment should be
done within 1 year. 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.
2. The
issue is proposed to be made to Employee or Director ; where Employee means a
permanent employee , a director including whole time director , or an
employee or a director of a subsidiary, in India or outside India, or of a
holding company of the company
3.
In case of Listed Company, ensure that the issue
of Sweat Equity Shares is in compliance with the SEBI (Issue of Sweat Equity) Regulations,
2002.
4.
The rights,
limitations, restrictions and provisions as are for the time being applicable
to equity shares shall be applicable to the sweat equity shares issued under
this section and the holders of such shares shall rank pari passu with other
equity shareholders
5. Explanatory
statement to be annexed to the notice of the general meeting contains the
specified particulars [Rule 8 of the Companies (Share Capital and Debenture)
Rules, 2014].
6. The
company has not issued sweat equity shares for more than 15% of the existing
paid up equity share capital in a year or shares of the issue value of rupees 5
Crores, whichever is higher. Further it is to be ensured that the issuance of
sweat equity shares in the company has not exceeded 25%, of the paid up equity
capital of the company at any time.
7. The
Sweat Equity Shares to be issued are valued at a price determined by a
registered valuer. A copy of the gist report shall be send to the shareholder
along with notice of General Meeting
8. If
the shares are issued pursuant to acquisition of an asset, the value of the
asset, as determined by the valuation report, shall be carried in the balance
sheet as per the Accounting Standards and the amount of the accounting value of
the sweat equity shares that is in excess of the value of the asset acquired,
as per the valuation report, shall be treated as a form of compensation to the
employee or the director in the financial statements of the company. The
Accounting value shall be the fair value of the sweat equity shares as
determined by a registered value.
9. Where
sweat equity shares are issued for a non-cash consideration on the basis of a
valuation report in respect thereof obtained from the registered valuer, such
non-cash consideration shall be treated in the following manner in the books of
account of the company-
a)
Where the non-cash consideration takes
the form of a depreciable or amortizable asset, it shall be carried to the
balance sheet of the company in accordance with the accounting standards; or
b)
Where clause (a) is not applicable, it
shall be expensed as provided in the accounting standard
10. The
Sweat Equity Shares issued are locked in / non transferable for a period of 3
years from the date of allotment. The fact and the period of lock in is stamped
in bold on such share certificates.
11. The
amount of Sweat Equity shares issued is included as a part of managerial
remuneration while calculating the limits, if the following conditions are
fulfilled
a)
The sweat equity shares are issued to
any director or manager; and
b)
They are issued for consideration
other than cash, which does not take the form of an asset which can be carried
to the balance sheet of the company in accordance with the applicable accounting
standards.
12. Details
as per Rule 8(13) of Companies (Share Capital and Debentures) Rules, 2014 of
the Sweat Equity shares are mentioned in the Director’s Report.
13. The
company is maintaining Register of Sweat Equity Shares in Form SH-3
14. The
Register of Sweat Equity Shares is maintained at the registered office of the
company or such other place as the Board may decide.
15. The
entries in the register are authenticated by the Company Secretary of the
company or by any other person authorized by the Board for the purpose.
Indicative list of documents to be
checked:
ü
Minutes of Board Meeting
ü
Special Resolution with Explanatory
Statement
ü
Minutes of General meeting
ü
Valuation Report
ü
Board’s Report
ü
Register of Sweat Equity Shares i.e. SH-3
ü eForm PAS-3
ü eForm MGT-14
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