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

Ritu Exports Ltd has not yet issued any shares of a particular class. Its board wants to issue sweat equity shares of that new class to employees. Based on Section 54(1), what is the position?

The issue is not permitted. Section 54(1) allows a company to issue sweat equity shares only of a class of shares already issued, so a new, not yet issued class cannot be used for sweat equity, whatever the Board decides.

  1. APermitted, if the Board approves it unanimously
  2. BPermitted, provided the securities premium account is used
  3. CNot permitted, because Section 54 allows sweat equity shares only of a class of shares already issuedCorrect
  4. DPermitted, if the shares are issued only to non-executive directors

Explanation

Section 54(1) states that a company may issue sweat equity shares of a class of shares already issued. A class not yet issued is outside this permission, and Board approval cannot replace the statutory conditions. The other options add conditions not found in the section.

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