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TOPIC-
S W E AT E Q U I T Y S H A R E S
B Y-
SARTHAK BISWAL
LL.M. (LAWS ON SECURITIES AND
FINANCIALMARKET)
R O L L N O. - 2 1 8 5 0 3 9
SWEAT EQUITY SHARES
• Section 2(88) of the Companies Act, 2013 describes ‘sweat equity shares.
Simply stated, sweat shares are offered to certain employees or directors of the
company for the following reasons –
1. Remarkable contribution and efforts of an employee or a director in
completion of any project.
2.Technical expertise in the field.
3.Value addition to the company through extraordinary contribution and gaining
intellectual property rights.
• The companies tend to offer sweat equity shares to the employees to attract
and retain the talent who helps the company grow.
• When an employee has sweat equity shares, he or she can receive a part of the
company’s profit as a return on their investment.
• For example, in a partnership firm some members contribute in the form of
cash, and others contribute their time and efforts towards the common
objective of the firm. We see there are two types of contributions towards the
capital of the firm, one is cash and other is sweat equity in the form of time and
effort. It is counted equivalent to the cash equity and distributed in the form of
equity stock to the owners and employees.
LAW UNDERLYING THE CONCEPT OF SWEAT
EQUITY SHARES
• The issuing of sweat equity shares is regulated by the Companies Act, 1956
and the Companies Act, 2013. To issue seat equity shares,an unlisted company
has to follow Section 54 of The Companies Act read with The Companies
(Share Capital and Debentures) Rules, 2014. A listed company has to abide by
SEBI Regulations besides the Companies Act, 2013.
WHO CAN ISSUE SWEAT EQUITY
SHARES?
• The following can issue sweat equity shares -
• Let us discuss the significance of sweat equity shares and how they benefit a company and the
employees –
I. Most start-ups at the primary stage are unable to reward their employees in cash or any
other monetary rewards. Hence, it makes sense to reward employees with sweat equity
shares. This is not limited to start-ups as well recognized companies can also do this.
II. Offering Employees sweat equity shares is a way of recognizing their hard work and efforts.
This kind of acknowledgment motivates them to stick with the company longer
III. Sweat equity shares are preferred as they negate the need to raise paychecks by taking on
debt
IV. If any employee got pay cut at any point sweat equity shares can make up for the lost
money
THANK YOU