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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks

In the context of equity share capital, which of the following best describes a 'sweat equity share' issued by an Indian company?

Sweat equity shares are issued to a company's employees or directors at a discount or for non-cash consideration, such as know-how, intellectual property rights or value additions they have provided. They reward contribution rather than cash investment, unlike rights issues or depository receipts.

  1. AA share issued to employees or directors at a discount or for consideration other than cash, for know-how or intellectual property rightsCorrect
  2. BA share issued to existing shareholders in proportion to their holding at a discount
  3. CA share carrying differential voting rights issued to promoters only
  4. DA share issued to a foreign investor against depository receipts

Explanation

Sweat equity shares are issued to directors or employees at a discount or for consideration other than cash, for providing know-how or creating intellectual property or value additions. A rights issue is an offer to existing shareholders, which is a different instrument. Depository receipts relate to foreign listing, not sweat equity.

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