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CS Executive · Capital Market and Securities Laws · Share Based Employee Benefits and Sweat Equity

Alpha Technologies Ltd, a company whose equity shares are listed on a recognised stock exchange, proposes to issue sweat equity shares to its key employees. Under the Companies Act, 2013 as quoted, which approach to the issue is correct?

A listed company must authorise sweat equity by a special resolution and issue the shares in accordance with the SEBI regulations. The Board cannot act alone, and the rules for unlisted companies do not apply once the shares are listed on a recognised stock exchange.

  1. APass an ordinary resolution and issue the shares on terms fixed by the Board alone
  2. BPass a special resolution and issue the shares in accordance with the SEBI regulations made for this purposeCorrect
  3. CObtain only stock exchange approval and issue the shares without any resolution
  4. DIssue the shares under rules prescribed for unlisted companies, since listing does not matter

Explanation

Section 54(1) requires the issue to be authorised by a special resolution. For a listed company, clause (d) requires the issue to follow the SEBI regulations. An ordinary resolution is not enough, and the unlisted-company rules apply only to companies that are not listed.

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