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

Meera Tech Ltd has issued only equity shares of one class and, under Section 54, allots sweat equity shares to its employees. Which statement about the status of these shares is correct?

Sweat equity shares are issued from a class already issued, and under Section 54(2) the rights and restrictions applicable to equity shares apply to them. Their holders rank pari passu with other equity shareholders, so they are not preference or subordinated shares.

  1. AThey carry no voting rights until converted into ordinary equity shares
  2. BThey rank behind other equity shareholders for dividend
  3. CThey are shares of a class already issued, and the rights, limitations and restrictions applicable to equity shares apply to them, with holders ranking pari passu with other equity shareholdersCorrect
  4. DThey form a separate class of preference capital with a fixed dividend

Explanation

Section 54(1) permits sweat equity shares of a class of shares already issued, and Section 54(2) applies equity rights and restrictions to them, with holders ranking pari passu. Options A and B contradict this. Option D is wrong because preference capital is defined by preferential dividend and repayment rights under Section 43.

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