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

Sundaram Textiles Ltd, an unlisted public company, wants to issue sweat equity shares to its working directors. Which of the following conditions must be satisfied under the Companies Act, 2013 and the Share Capital and Debentures Rules for such an issue?

A company issuing sweat equity shares must first get authority through a special resolution in a general meeting. The resolution has to disclose the number of shares, price, consideration and the class of persons. A mere board resolution or later intimation to the Registrar is not sufficient.

  1. AThe issue must be authorised by a special resolution passed by the company in general meetingCorrect
  2. BThe issue can be made by a simple board resolution without shareholder approval
  3. CThe issue requires only prior intimation to the Registrar after allotment
  4. DThe issue is allowed only after the company has completed five years of existence

Explanation

Sweat equity shares may be issued only if the issue is authorised by a special resolution of the company, and the resolution must state the number of shares, current market price, consideration and the class of directors or employees. A board resolution alone is not enough, so option B is wrong. Intimation after allotment does not replace prior approval, and there is no five-year bar for general companies.

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