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

Meridian Ltd, an unlisted public company, proposes to issue sweat equity shares to its employees. Which of the following statements about the conditions in the Companies Act, 2013 is correct?

The correct position is that sweat equity shares must be of a class already issued by the company and require a special resolution of shareholders. The resolution must state details such as number, price, consideration and allottees. Board approval alone or an ordinary resolution is not enough.

  1. AA special resolution is needed, and the shares must be of a class already issued by the companyCorrect
  2. BThe board alone may approve, with no shareholder approval needed
  3. CAn ordinary resolution is enough, and any class of shares may be used
  4. DShares may be issued only after the company completes five years of operation

Explanation

Sweat equity shares are of a class already issued by the company, and issue needs authorisation by a special resolution. The resolution must specify the number of shares, current market price, consideration and the persons to whom they are issued. Board approval alone or an ordinary resolution is insufficient, and no five-year rule applies for such companies.

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