Section 54 of CA 2013 : Section 54: Issues Of Sweat Equity Shares

Explanation using Example

Imagine a tech startup, "InnovTech Pvt. Ltd.", which has been operational for a few years. The company has a dedicated team of employees who have worked tirelessly to develop a revolutionary software product. The directors of InnovTech want to reward these employees for their hard work and dedication that has significantly contributed to the value of the company.

To do so, they decide to issue sweat equity shares to their employees. Before they can proceed, they must fulfill certain conditions:

• The board calls a general meeting where a special resolution is passed with the requisite majority of shareholders agreeing to issue sweat equity shares.
• The resolution clearly specifies that 10,000 shares will be issued at the current market price of $10 per share as sweat equity. It also names the specific employees from the development team who will receive these shares as a reward for their contributions.
• Since "InnovTech Pvt. Ltd." is not listed on a stock exchange, they follow the prescribed rules applicable to unlisted companies for issuing sweat equity shares.

Once the shares are issued, the employees who received the sweat equity shares will have the same rights as other equity shareholders of "InnovTech Pvt. Ltd.", including voting rights, dividends, and any other benefits.