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PURE INSTRUMENTS: ISSUE OF SWEAT EQUITY SHARES

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Sweat Equity Shares 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. 

SEBI (ISSUE OF SWEAT EQUITY) REGULATIONS, 2002 for all listed Companies: 

Who shall be eligible for Sweat Equity Shares? Employee means:

(a) Permanent Employees: A permanent employee of the company who has been working for at least the last 1 year; or

(b) Directors: A director of the company whether a whole time director or not; or

(c) Employees of Holding & Subsidiary Companies: An employee or a director of a subsidiary or of a holding company of the company whether in India or outside India. 

Explanatory Statement to the Special Resolution: As mentioned above, special resolution shall be passed for the purpose of issue of sweat equity share, the explanatory statement to be annexed to the Notice of the general meeting, shall contain the following details:- 

(a) The date of the Board meeting wherein the sweat equity shares‟ proposal was approved.

(b) Reasons/Justification for the issue of sweat equity shares.

(c) Total numbers of shares to be issued as sweat equity including the class of shares are intended to be issued.

(d) Class of directors or employees to whom such equity shares are to be issued.

(e) Principal terms and conditions on which sweat equity shares are to be issued.

(f) Time period of association of Directors or Employees with the company.

(g) The price at which the sweat equity shares are proposed to be issued.

(h) The consideration including consideration other than cash.

(i) Ceiling on managerial remuneration, if any.

(j) A statement to the effect that the company shall conform to the applicable accounting standards; and diluted Earning per Share pursuant to the issue of sweat equity securities, calculated in accordance with the applicable accounting standards. 

Validity: The Special Resolution shall be valid for making the allotment for not more than 12 months from the date of its passing. 

Limit for Issue Sweat Equity: The Company shall not issue sweat equity shares more than 15% of paid – up equity share capital in a year or value of shares of Rs.5 crores, whichever is higher. 

Note: The issuance of sweat equity shares in the Company shall not exceed 25% of the paid – up equity capital at any time. 

Lock – in period: Sweat equity shares shall be non – transferable for three years from the date of allotment.  Valuation: The sweat equity shares to be issued shall be valued at a price determined by a registered valuer as the fair price giving justification for such valuation. 

A copy of the valuation report obtained in both the above cases shall be sent to the shareholders with the notice of the general meeting. 

Part of managerial remuneration: The amount of sweat equity shares issued shall be treated as part of managerial remuneration subject to the fulfillment of the following conditions:- 

(a) The sweat equity shares are issued to the director or manager; and

(b) They are issued for consideration other than cash.

Note: The sweat equity shares issued during an accounting period, the accounting value of sweat equity shares shall be treated as a form of compensation to the employee or the director in the financial statements of the company. 

Disclosure in Directors’ Report: The Board of Directors shall disclose the following details in Directors‟ Report with regard to issue of sweat equity shares:- 

(a) Class of director/employee to whom sweat equity shares were issued;

(b) Class of shares issued as Sweat Equity Shares;

(c) The number of sweat equity shares issued to the directors, key managerial personnel (KMP) 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/justification for the issue;

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

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

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

(h) Consideration including consideration other than cash received;

(i) Diluted Earnings per Share (EPS) pursuant to issuance of sweat equity shares.

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