Consider the following statements regarding regulation of “Sweat Equity” in the Indian economy:

1. Sweat equity refers to shares issued by a company to its employees for non-cash consideration.

2. There is no maximum limit of sweat equity shares that can be issued by a listed company

3. Companies are only allowed to provide Sweat equity benefits to employees, who are exclusively working for a company and not to any of its group companies including a subsidiary or an associate.

Which of the statements given above is /are correct?

Solution

● Statement 1 is correct: Sweat equity is a nonmonetary contribution that the individuals or founders of a company make towards the company. Cash-strapped startups and business owners typically use sweat equity to fund their companies. ● Statement 2 is incorrect: The maximum yearly limit of sweat equity shares that can be issued by a listed company has been prescribed at 15% of the existing paid-up equity share capital or shares of the value of Rs 5 crore, whichever is higher. The issuance shall not exceed 25% of the paid-up capital at any time. In case of companies listed on the Innovators Growth Platform (IGP), the yearly limit will be 15% and overall limit will be 50% of the paid-up capital at any time. It will be applicable for 10 years from the date of the company’s incorporation. ● Statement 3 is incorrect: Companies will now be allowed to provide share-based employee benefits to employees, who are exclusively working for such a company or any of its group companies including a subsidiary or an associate.