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

Meridian Pharma Ltd. wishes to issue sweat equity shares to its employees and a director. Which one of the following is a correct condition for such an issue?

An issue of sweat equity shares needs a special resolution and must follow the prescribed rules, including a lock-in period on the shares allotted. A board resolution or ordinary resolution alone is not sufficient, and employees and directors are eligible allottees.

  1. AIt requires a special resolution, and the shares are locked in or non-transferable for a prescribed periodCorrect
  2. BIt requires only a board resolution if the shares are issued at par
  3. CIt can be issued only to promoters and not to permanent employees
  4. DIt requires an ordinary resolution and carries no lock-in restrictions

Explanation

Sweat equity shares are issued at a discount or for consideration other than cash for know-how or intellectual property rights or value additions. The issue must be authorised by a special resolution and comply with the prescribed rules, which include a lock-in period for the shares. An ordinary resolution or board resolution is not enough, and permanent employees and directors are eligible.

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