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

Mehta Pharma Ltd, an unlisted public company, wants to issue sweat equity shares to its employees and directors. Which statement correctly reflects the law?

Sweat equity shares may be issued to directors or employees at a discount or for non-cash consideration, such as know-how or value additions, but only after passing a special resolution and complying with the prescribed rules. Board approval alone is not sufficient.

  1. ASweat equity shares may be issued only to employees, not to directors
  2. BSweat equity shares can be issued at a discount or for consideration other than cash, for know-how or value additions, after a special resolution and subject to the prescribed conditionsCorrect
  3. CSweat equity shares may be issued by board resolution alone, as no shareholder approval is required
  4. DSweat equity shares may be issued only after one year of the company's incorporation, with no other condition

Explanation

Sweat equity shares are issued at a discount or for consideration other than cash, for providing know-how or making available rights in the nature of intellectual property or value additions. They may be issued to directors or employees, but only after a special resolution and compliance with the Rules. Option A is wrong as directors are eligible. Option C ignores the special resolution.

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