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CA Foundation · Business Laws · The Companies Act, 2013

Zenith Motors Ltd, a public company, has a paid-up share capital and free reserves of ₹100 crore. It wants to issue sweat equity shares to its employees. Which condition is correct under the Companies Act, 2013?

Sweat equity shares must be of a class already issued by the company and authorised by a special resolution of shareholders. The resolution must state the number of shares, their price and the class of directors or employees receiving them. A board resolution alone is not sufficient.

  1. AThe issue must be authorised by a special resolution and the shares must be of a class already issuedCorrect
  2. BThe issue needs only a board resolution
  3. CThe company must have been incorporated for at least 5 years
  4. DSweat equity shares can be issued only to promoters

Explanation

Sweat equity shares must be of a class already issued by the company. The issue needs authorisation by a special resolution, and the resolution must specify the number of shares, the current market price, the consideration, and the class of directors or employees. A board resolution alone is not sufficient, and the issue is not restricted to promoters. The company must also have been carrying on business for at least one year, not five.

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