Section 54 of the Companies Act, 2013
Section 54 of the Companies Act, 2013 – Issue of Sweat Equity Shares
Provision Summary:
Section 54 of the Companies Act, 2013 deals with the issue of sweat equity shares by a company. Sweat equity shares are those issued by a company to its directors or employees either at a discount or for consideration other than cash, in recognition of their contribution in terms of know-how, intellectual property rights (IPR), or value additions.
🔹 Key Provisions:
Eligibility to Issue:
A company can issue sweat equity shares if:
It is authorized by a special resolution passed in a general meeting.
The resolution specifies:
The number of shares
Current market price
Consideration (if any)
Class or classes of directors/employees to whom they are to be issued
Time Condition for Companies:
Sweat equity shares can be issued only after one year has passed since the company became entitled to commence business.
Valuation:
The valuation of IPR, know-how, or value addition must be done by a registered valuer.
Lock-in Period:
Sweat equity shares are locked-in for 3 years from the date of allotment and this must be mentioned on the share certificate.
Limit on Issue:
The company must comply with the limits prescribed under Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014, such as:
Not exceeding 15% of the existing paid-up equity share capital in a year, or shares of the issue value of ₹5 crore, whichever is higher.
Total sweat equity shares issued in the company shall not exceed 25% of the paid-up equity capital at any time.
Disclosure:
Details of such issue must be disclosed in the Board’s Report.
🔸 Applicability:
Applies to both private and public companies, subject to conditions.
For listed companies, SEBI regulations also apply.
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