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

Sagar Logistics Ltd, an unlisted public company, wants to issue sweat equity shares to its employees. It has been carrying on business for 2 years since incorporation. The members have not yet passed any resolution. Under the Companies Act, 2013 and the Rules, what is the correct position?

The company may issue sweat equity shares only after passing a special resolution in general meeting, and it must have been carrying on business for at least one year. Having 2 years of business satisfies the time condition, but a mere board resolution is inadequate.

  1. AThe board may issue them by a simple board resolution as the company is unlisted
  2. BThe company may issue them only after passing a special resolution in general meeting, and the company must have been carrying on business for at least one yearCorrect
  3. CThe company can issue them only after 5 years of carrying on business
  4. DThe company may issue them only to promoters and not to employees

Explanation

Sweat equity shares of a class already issued may be issued only if authorised by a special resolution passed in general meeting, and the company must have been carrying on business for not less than one year at the date of issue. Sagar Logistics has operated for 2 years, so the time condition is met but the special resolution is missing. A board resolution alone is insufficient.

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