Issue of Sweat Equity Shares

INTRODUCTION

The corporate world is growing very fast and there are so many people involved in creating value for the company. Companies have directors and employees  which help a company to grow faster. Sometimes salary and other benefits do not motivate the directors and employees to work better for the company. Apart from the salary and other incentives the directors and employees are provided with an issue of ‘Sweat Equity Shares’. These are generally provided to the directors and employees either at a discount or for consideration other than cash. All these basically contribute to the  development of the company. Issuing shares to these people does not not go in ruin but creates valuable assets for the company like creating intellectual property rights such as trademark, copyright, and patents.

The company does waste its valuable shares to issue these shares to normal people, instead they issue these shares to directors and employees which directly create some benefit for the company. As the competition in the world is increasing and there is a need to adhere to the growth of the company to a very large extent. So, to motivate them companies issue Sweat Equity Shares.

WHAT ARE SWEAT EQUITY SHARES?

Sweat Equity Shares are those shares that are issued by a company to its directors or employees at a discount or for consideration other than cash, as they provide know–how or make available rights.

DEFINITION

As per section 2(88) of the Companies  Act 2013 “sweat equity shares” means such equity shares issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

CONDITIONS FOR THE ISSUE OF SWEAT EQUITY SHARES

Companies Act provides some of the conditions for the issue of sweat equity shares which need to be fulfilled before issuing. These are as follows-

·         The issue is authorized by a special resolution.

·         The special resolution should specify the number of shares, the current market price, consideration if any, and the class or classes of directors or employees.

·         If the issuing company is listed on the stock exchange, it should comply with SEBI guidelines.

MEANING OF EMPLOYEE AND DIRECTOR

As provided in companies rules 2014 is as under-

·         A permanent employee of the company who has been working in India or outside India.in the nature of intellectual property rights or value additions to the company.

An employee or directive of a holding company.

Issuing sweat equity is beneficial for the company but sometimes it can create a loss for the company as employees sometimes prefer more stock  which results in many financial gains. The directors and employees know- how to help in the creation of intellectual property rights like Patents, copyright, trademark or other value addition to the company. Here, value addition means any increase in the image of the business in the outside world can be called value addition. Basically issuing sweat equity shares benefit a lot to any company. A systematic accounting procedure is also followed for sweat equity shares. In the accounting treatment of sweat equity shares, there are laid down guidelines for sweat equity shares issued for non-cash consideration and treatment of the same in the books of accounts of the company. If a depreciable or amortizable asset is the non-cash consideration then it needs to be carried to the balance sheet of the company in accordance with the accounting standards or if it is not applicable, it shall be expensed as provided in the accounting standards. The amount against the issue of sweat equity shares is considered managerial remuneration as per sections 197 and 198 of the Act.

As the impending penalty for any defaults, any company, and the directors fail to adhere to theAn employee or directive of a holding company.

As the impending penalty for any defaults, any company, and the directors fail to adhere to the provision of sweat equity shares, there is no direct penal provision provided under the Companies Act, 2013. However, it provides that for acts of omission or commission, default, malpractice, etc for which no penalty or reprimand is provided in another place in this Act, the company and/or concerned employee of the company shall be punishable with a fine which may extend to Rs 10,000/- and where there are cases of the perpetual contravention, the fine may extend to Rs 1000/-  for every day from the date of contravention.

CONCLUSION

so, basically, sweat equity shares are issued for the general benefit of the company to a great extent. This generally adds value to the company in the form of creating valuable intellectual property rights like trademark, patent, copyright etc.

REFERENCES

https://www.edelweiss.in/investology/introduction-to-stock-markets-51c006/what-are-sweat-equity-shares—meaning–taxation-0fcaca

section -2( 88) of Companies Act 2013

section – 54 of Companies ActAs the impending penalty for any defaults, any company, and the directors fail to adhere to the provision of sweat equity shares, there is no direct penal provision provided under the Companies Act, 2013. However, it provides that for acts of omission or commission, default, malpractice, etc for which no penalty or reprimand is provided in another place in this Act, the company and/or concerned employee of the company shall be punishable with a fine which may extend to Rs 10,000/- and where there are cases of the perpetual contravention, the fine may extend to Rs 1000/-  for every day from the date of contravention.

REFERENCES

https://www.edelweiss.in/investology/introduction-to-stock-markets-51c006/what-are-sweat-equity-shares—meaning–taxation-0fcacahttps://www.indiafilings.com/learn/issue-sweat-equity-shares/https://blog.ipleaders.in/company-can-issue-sweat-equity-shares/section -2( 88) of Companies Act 2013section – 54 of Companies Act

 2013

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