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

Mehta Pharma Ltd, an unlisted public company, wishes to issue sweat equity shares to its employees. Its board proposes to do so on the strength of a board resolution alone, as the shares are to be issued to only 10 employees. What is the correct legal position under the Companies Act, 2013?

A company can issue sweat equity shares only after passing a special resolution in general meeting and satisfying the prescribed conditions. A board resolution alone is insufficient, however few employees are involved, and the power is not confined to listed companies.

  1. AThe board resolution is enough because only a small number of employees are involved
  2. BThe company may issue them only by a special resolution passed in general meeting, with the prescribed conditions satisfiedCorrect
  3. CThe company can issue them only if it has been in business for at least 10 years
  4. DSweat equity shares can be issued only by listed companies

Explanation

Sweat equity shares are issued to employees or directors at a discount or for consideration other than cash, for know-how or intellectual property rights. The company must pass a special resolution in general meeting and meet the conditions prescribed in the Rules. A board resolution alone is insufficient, and no minimum 10-year business period applies for such issue. Unlisted companies may also issue them, subject to the Rules.

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