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      Question

      Which of the following statements correctly describes

      ‘sweat equity shares’ under the Companies Act, 2013?
      A Shares issued to the public at a discount to raise capital. Correct Answer Incorrect Answer
      B Shares issued to employees or directors for their services or know-how, not for cash. Correct Answer Incorrect Answer
      C Shares issued only to promoters during incorporation. Correct Answer Incorrect Answer
      D Shares allotted exclusively to financial institutions. Correct Answer Incorrect Answer
      E Shares with no voting rights issued to debenture holders. Correct Answer Incorrect Answer

      Solution

      Under Section 2(88) and Section 54 of the Companies Act, 2013, sweat equity shares are: • Equity shares issued by a company to its directors or employees, • In recognition of their contribution — like intellectual property, technical know-how, or value additions — • And not issued for cash consideration. Key points: • These shares are subject to conditions under Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014. • A special resolution is required for issuance. • They help retain talent and reward contributions that enhance the value of the company. Sweat equity is different from ESOPs, which are generally purchased by employees at concessional rates.

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