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

Rohan holds sweat equity shares allotted by Sagar Foods Ltd under Section 54. Which statement about the rights of these shares is correct under Section 54(2)?

Sweat equity shares carry the same rights, limitations and restrictions as equity shares, and their holders rank pari passu with other equity shareholders. Section 54(2) provides this, so they are not junior shares, not preference shares, and are not stripped of rights by the section.

  1. AThey carry the rights applicable to equity shares and the holders rank pari passu with other equity shareholdersCorrect
  2. BThey rank junior to other equity shares in dividend entitlement
  3. CThey carry no voting rights until a lock-in period expires
  4. DThey are treated as preference shares for winding-up purposes

Explanation

Section 54(2) applies to sweat equity shares the same rights, limitations, restrictions and provisions as apply to equity shares, and holders rank pari passu with other equity shareholders. So treating them as junior or as preference shares is wrong, and the section does not remove voting rights.

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