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

Delta Infra Ltd already has equity shares in issue. It wants to issue sweat equity shares carrying differential voting rights that form a new class not yet issued. Based on Section 54(1) of the Companies Act, 2013, what is the legal difficulty?

Section 54(1) allows a company to issue sweat equity shares only of a class of shares already issued. Since the differential voting class has not yet been issued, a special resolution alone cannot validate sweat equity in that new class.

  1. ANone, because a special resolution is sufficient for any class
  2. BA company may issue sweat equity shares of a class of shares already issued, so a new, unissued class cannot be usedCorrect
  3. CSweat equity can only be issued to promoters
  4. DSweat equity is allowed only after the company obtains a court order

Explanation

Section 54(1) permits sweat equity shares of a class of shares already issued. A special resolution alone does not allow a new class. The section has no court-order requirement and does not limit issues to promoters.

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