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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Equity and Procedural Aspects - Public Funding

A company wants to issue shares to its employees as sweat equity at a discount for know-how contributed. Under the Companies Act, 2013 text on sweat equity, which condition must be met?

Sweat equity needs a special resolution specifying the number of shares, current market price, consideration if any, and the class of directors or employees. The shares must be of a class already issued and rank pari passu with other equity shares.

  1. AThe issue must be authorised by a special resolution that specifies the number of shares, current market price, consideration, if any, and the class of directors or employeesCorrect
  2. BThe issue needs only a board resolution if the company is unlisted
  3. CThe shares must be of a new class not previously issued
  4. DThe sweat equity shares rank below existing equity shares for dividend

Explanation

Section 54 requires a special resolution specifying number of shares, current market price, consideration, if any, and the class of directors or employees. The shares must be of a class already issued and rank pari passu with other equity shares. So the other options contradict the section.

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