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

Gamma Foods Ltd has issued sweat equity shares to its chief engineer. A minority shareholder asks whether these shares carry lesser rights than ordinary equity shares. What is the correct position under Section 54(2) of the Companies Act, 2013?

Sweat equity shares carry the same rights, limitations and restrictions as equity shares, and their holders rank pari passu with other equity shareholders. They are not subordinate and their rights are not fixed separately by the Board.

  1. AThey carry no voting rights until the lock-in ends
  2. BThey rank below existing equity shares for dividend
  3. CThe rights, limitations and restrictions applicable to equity shares apply to them, and holders rank pari passu with other equity shareholdersCorrect
  4. DThey are a separate class with rights fixed solely by the Board

Explanation

Section 54(2) applies the same rights, limitations, restrictions and provisions as for equity shares and gives holders pari passu ranking with other equity shareholders. So they are not subordinated.

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