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

Kaveri Foods Ltd has 1,00,000 equity shares of ₹10 each, fully paid, and no preference shares. It wants to issue sweat equity shares to its employees. The company was incorporated 2 years ago and is not a startup. Which statement correctly reflects the legal position?

Sweat equity shares may be issued only of a class already issued by the company and only after a special resolution is passed in a general meeting. A board resolution alone is not enough, and the shares can go to employees or directors, so the first statement is correct.

  1. ASweat equity shares can be issued only by a special resolution, and only for a class of shares already issued by the companyCorrect
  2. BSweat equity shares can be issued by a board resolution alone, with no shareholder approval
  3. CSweat equity shares can be issued only to promoters, not to employees
  4. DSweat equity shares can be issued only after the company has completed 3 years from incorporation, in every case

Explanation

A company may issue sweat equity shares of a class already issued, only after passing a special resolution in a general meeting, and subject to the prescribed conditions. Board resolution alone is insufficient. They may be issued to employees or directors, and the 3-year requirement applies only to a startup exemption on the 15% limit, not generally. A 3-year bar does not apply here.

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