Section 54 of the Companies Act, 2013

Section 54 of the Companies Act, 2013Issue 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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