The Companies (Amendment) Act, 1999, has allowed issue of
sweat equity shares subject to fulfillment of certain conditions. A new section
-79A has been inserted for this purpose. The provision of s.79A are summarized below:
Notwithstanding anything contained in s.79, a company may
issue sweat equity shares of a class of shares already issued if the following
conditions are satisfied: (a) the issue of sweat equity shares is authorised by
a special resolution passed by the company in the general meeting; (b) the
resolution specifies the number of shares, current market price, consideration,
if any and the class or classes of directors or employees to whom such equity
shares are to be issued; (c) not less than one year has, at the date of the
issue elapsed since the date on which the company was entitled to commence
business; (d) the sweat equity shares of a company whose equity shares are
listed on a recognised stock exchange are issued in accordance with the
regulations of SEBI. In case of a company whose shares are not listed on any
recognized stock exchange, the sweat equity shares may be issued in accordance
with the guidelines as may be prescribed. For the purposes of this section, the
expression ‘a company' means company incorporated, formed and registered under
this Act and includes its subsidiary company incorporated in a country outside
India.
The expression "sweat equity shares" means equity
shares issued by the company to employees or directors at a discount or for
consideration other than cash for providing know-how or making available rights
in the nature of intellectual property rights or value additions, by whatever
named called."
However, all the limitations, restrictions and
provisions relating to equity shares shall be applicable to such sweat equity
shares.
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