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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. It has been carrying on business for three years. Which of the following is a correct legal requirement for this issue?

A company can issue sweat equity shares of a class already issued once it passes a special resolution in general meeting. At least one year must have elapsed since commencement of business. Directors and employees are both eligible, so an ordinary resolution is not enough.

  1. ASweat equity shares may be issued only after the company completes five years of business
  2. BA special resolution of the company in general meeting is required, and the issue must be of a class of shares already issuedCorrect
  3. COnly an ordinary resolution is needed because the shares go to directors who are working for the company
  4. DSweat equity shares can be issued only to persons who are not directors, such as employees

Explanation

Sweat equity shares may be issued only of a class already issued, and the issue must be authorised by a special resolution. The company must have completed at least one year of business since commencement, so three years is sufficient. Directors and employees are both eligible, so the ordinary resolution option and the exclusion of directors are wrong.

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