SWEAT EQUITY SHARES

SWEAT EQUITY SHARES

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SWEAT EQUITY SHARES

Meaning

Sweat Equity shares are issued to keep the employees of the company motivated by making them partner in the growth of the company.

As per section 2(88) sweat equity shares 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 like intellectual property rights or value addition.

Eligibility

These shares are issued to

Permanent employees of the company andof the subsidiary & holding company of the company.

Directors of the Company and of the subsidiary & holding company of the company.

Limit on issue:

The Company can issues sweat equity shares upto higher of the two:

15% of the existing paid-up equity share capital

Shares of the issue value of Rs. 5 crore.

Provided that the issuance of sweat equity shares shall not exceed 25% of the paid up equity capital of the company.

Provided further that a startup company may issue sweat equity shares not exceeding 50% of its paid-up capital upto 10 years from the date of its incorporation.

Lock-in Period:

Sweat Equity shares issued to directors & employees shall be non – transferable for a period of 3 years from the date of allotment.

Valuation by Registered Valuer:

Sweat Equity Shares shall be valued at a price determined by a registered Valuer as the fair price gives justification to the valuation.

Valuation of Intellectual Property Rights or of know how or value additions for which sweat equity shares are to be issued, shall be carried out by a Registered Valuer who shall provide a proper report addressed to the Board of Directors with justification of such valuation.

Treatment of non- cash consideration:

Where sweat equity shares are issued for non – cash consideration on the basis of valuation report obtained from registered valuer, such non- cash consideration shall be treated as:

If it is a depreciable asset, shall be carried to balance sheet as per relevant standards.

Otherwise shall be expensed as per the standards.

Conditions as per Section 54 (1)

The issue shall be authorized by a Special Resolution;

The Resolution should specify;

• Number of shares

• Current Market Price, if any

• Consideration, if any

• Class of directors or employees to whom sweat equity shares are issued

• Fair Market Value arrived by the Registered Valuer

Regulations of SEBI ( Securities Exchange Board of India) shall be complied with, if listed on Stock Exchange

If not listed, then Rule 8 of the Companies (Share and Debentures)Rules,2014 shall be followed.

Board Resolution:

Before passing Special Resolution in general meeting, a Board Meeting need to be conducted to pass the Board Resolution for issuance of sweat equity shares.

Form PAS- 3 is to be filed within 30 days of passing the Board Resolution for allotting sweat equity shares.

Validity of Special Resolution:

The Special Resolution passed shall be remain valid for making allotment of sweat equity shares for a period of 12 months from the date of passing the resolution.

The Special Resolution need to be filed in MGT 14 to MCA within 30 days of passing the same.

Disclosure in Directors’ report:

The Board of Directors’ shall disclose in the Directors’ Report for the year in which sweat equity shares are issued, the following details:

Class of directors or employees to whom shares are issued

Number of shares issued

Justification for the issue

Principal terms and conditions for the issue

Fair Market Value as determined by the Registered Valuer etc.

Maintenance of Register:

The Company shall maintain a Register of Sweat Equity Shares in Form SH-3 at the Registered Office of the Company which is to be authenticated by the Company Secretary (CS) of the Company or any other person authorized by the Board.

Pari Passu with other equity shareholders:

Section 54(2)

The rights, limitations, restrictions, and provisions as are applicable to equity shares shall be applicable to sweat equity shares and the holders of such shares shall rank pari passu with other equity shareholders.

Tax Implications:

The value of sweat equity shares allotted shall be treated as perquisites under Section 17 read with Rule 3 of Income Tax Act, 1961.

The shares shall be valued at fair market value as determined by the Registered Valuer.

As per Rule 3,

If the company is listed in a recognized stock exchange, the fair market value shall be average of opening and closing price of the share on the recognized stock exchange.

If the company is not listed in a recognized stock exchange, the fair market value shall be as determined by merchant banker on the specified date.

Sweat Equity Shares shall be valued at:

Fair Value as determined by the Registered Valuer ***

Less: The value at which shares was issued to the employees ***

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Our Packages

BASIC

  • Filing of Form PAS-3
  • Filing of MGT-14
  • Maintaing of Register of Sweat Equity shares in SH 3
  • Call & Email support
  • Free Advice by CS
Pay Now: 50000

Discount – 30%

Rs. 35000/-

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*(Exclusive of Government fees & taxes)

COMPLIANCE TO BE FOLLOWED

There are several compliances the private company needs to adhere to under the Companies Act,2013. It is imperative that you take note of this or else risk facing unnecessary penalties and fees.

There are several compliances the private company needs to adhere to under the Companies Act,2013. It is imperative that you take note of this or else risk facing unnecessary penalties and fees.

Annual General Meeting

Under Section 96, The company needs to conduct an Annual General Meeting (AGM) every year with a gap not exceeding 15 months between any 2 AGM. The Annual General Meetings need to be presided over with a minimum attendance of 1/3rd directors or a minimum of 2, whichever is higher.

Statutory Auditor

A company auditor needs to be appointed within 30 days of the company's incorporation through Form ADT – 1 and sent to the ROC.

GST Registration and Filing

A company needs to apply for GST to conduct any business activities in the country. Having a GST number becomes mandatory if the company is engaging in interstate business, having an online store or having an annual turnover exceeding 20 lacs.

At the same time, the company needs to ensure GST is filed every month irrespective of any turnover in the company books.

Trademark Registration

The registration of the company name with the ROC does not ensure the protection of your name or brand. For complete ownership rights over your name, brand and logo, you need to apply for Trademark Registration.

Annual filing with ROC

Every year a private limited company is required to file multiple forms depending upon several factors. Among them 2 important ones are, Form AOC 4 containing the company financial statements that are Profit and Loss account and Balance Sheet and Form MGT – 7 containing the annual return.

Income Tax Audit

All regulations mentioned under section 44AB need to be complied with and followed. This includes tax audits and various other requirements.!

The list is not exhaustive and there still remains a lot of compliances which a private company needs to keep in mind while conducting business operations in India. Our team at helpmybiz helps ensure that each and every regulation is adhered to and followed in compliance with the laid down regulations. Get in touch with our experts today!

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