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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Kaveri Foods Ltd, an unlisted public company, wants to issue sweat equity shares to its working directors and employees in consideration for their know-how and value additions. The company has been carrying on business for more than one year. Which of the following is a correct legal condition for such an issue?

A company issuing sweat equity shares must have its issue authorised by a special resolution in general meeting, which specifies the number of shares, price, consideration and the class of persons. A board resolution alone is not enough, and directors as well as employees may receive them.

  1. AThe issue must be authorised by a special resolution passed by the company in general meetingCorrect
  2. BThe issue can be made by a mere board resolution without shareholders' approval
  3. CThe issue is permitted only to employees and not to directors
  4. DThe issue is allowed only after the company has completed five years of business

Explanation

Sweat equity shares of a class already issued can be issued only if authorised by a special resolution in general meeting, with the resolution specifying the number, current market price, consideration and class of persons. The company must also have carried on business for at least one year. A board resolution alone is insufficient, and directors are eligible along with employees.

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