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

Zenith Pharma Ltd wants to reward its senior employees with sweat equity shares. Under Section 54 of the Companies Act, 2013, which of the following is a condition for such an issue?

Section 54(1)(a) requires the issue of sweat equity shares to be authorised by a special resolution passed by the company. A Board resolution or an ordinary resolution is insufficient, and the section does not require preference shares or a premium.

  1. AThe issue must be authorised by a special resolution passed by the companyCorrect
  2. BThe issue must be authorised by an ordinary resolution passed by the Board
  3. CThe company must first issue preference shares of the same value
  4. DThe shares must be issued only at a premium credited to securities premium account

Explanation

Section 54(1)(a) requires that the issue of sweat equity shares be authorised by a special resolution of the company. An ordinary or Board resolution alone is not enough. The other options add conditions that Section 54 does not state.

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