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

Mahalaxmi Foods Ltd, an unlisted public company, wants to help its employees buy its fully paid-up shares by providing money to a trust that holds the shares for their benefit. Under section 67 of the Companies Act, 2013 as extracted, which condition must be met for this to be outside the ban on financial assistance?

The exemption in section 67(3)(b) requires a scheme approved by the company through a special resolution, in line with the prescribed requirements, for buying fully paid-up shares held by trustees for employees or by employees. A Board-only approval or the six-month salary cap does not apply to this route.

  1. AThe money must be given only to directors and key managerial personnel
  2. BThe scheme must be approved by the company through a special resolution and meet the prescribed requirementsCorrect
  3. CThe scheme must be approved by the Board alone by a simple majority
  4. DThe amount must not exceed six months' salary of each employee

Explanation

Section 67(3)(b) exempts provision of money under a scheme approved by the company through special resolution, per prescribed requirements, for purchase of fully paid-up shares held by trustees for employees or held by employees. The six-months-salary limit applies to loans to employees under clause (c), which exclude directors and KMP, so the fourth option is wrong here.

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