Rule 8 of the Companies (Share Capital and
Debentures) Rules 2014 laid down procedure for issue of sweet equity shares.
(i) for their
providing know-how or
(ii) making
available rights in the nature of intellectual property rights or
(iii) value
additions, by whatever name called,
unless the issue is authorised by a special
resolution passed by the company in general meeting.
A listed company which has listed its debt
securities may come within the scope of this rule but a listed company which has
listed its equity shares is excluded as it may require to comply with SEBI
Regulations.
‘‘Employee’’ means-
(a) a permanent employee of the company who has
been working in India or outside India, for at least last one year; or
(b) a director of the company, whether a whole
time director or not; or
(c) an employee or a director as defined in
sub-clauses (a) or (b) above of a subsidiary, in India or outside India, or of a
holding company of the company.
‘Value additions’ means actual
or anticipated economic benefits derived or to be derived by the company from an
expert or a professional for providing know-how or making available rights in
the nature of intellectual property rights, by such person to whom sweat equity
is being issued for which the consideration is not paid or included in the
normal remuneration payable under the contract of employment, in the case of an
employee.
Explanatory Statement annexed with
Notice:
The explanatory statement to be annexed to the
notice of the general meeting shall contain the following particulars,
namely:-
(a) The date of the Board
meeting at which the proposal for issue of sweat equity shares was
approved;
(b) The reasons or justification
for the issue;
(c) The class of shares under
which sweat equity shares are intended to be issued;
(d) The total number of shares
to be issued as sweat equity;
(e) The class or classes of directors or
employees to whom such equity shares are to be issued;
(f) The principal terms and
conditions on which sweat equity shares are to be issued, including
basis of valuation ;
(g) The time period of
association of such person with the company;
(h) The names of the directors or
employees to whom the sweat equity shares will be issued and their
relationship with the promoter or/and Key Managerial Personnel;
(i) The price at which the sweat
equity shares are proposed to be issued;
(j) The consideration including
consideration other than cash, if any to be received for the sweat equity;
(k) The ceiling on managerial
remuneration, if any, be breached by issuance of such sweat equity and
how it is proposed to be dealt with;
(l) A statement to the effect that the company
shall conform to the applicable accounting standards; and
(m) Diluted Earnings per Share
pursuant to the issue of sweat equity shares , calculated in accordance with the
applicable accounting standards.
Validity period of Special
Resolution:
The special resolution authorising the issue of
sweat equity shares shall be valid for making the allotment within a period of
not more than twelve months from the date of passing of the
special resolution.
Cap on Sweet Equity Shares:
The company shall not issue sweat equity shares
for more than
(a) fifteen
percent of the existing paid up equity share capital in a year or
(b)shares of the issue value
of rupees five crores, whichever is higher.
The issuance of sweat equity shares in the
Company shall not exceed twenty five percent, of the paid up
equity capital of the Company at any time.
Lock in Period:
The sweat equity shares issued to directors or
employees shall be locked in/non transferable for a period of three
years from the date of allotment.
The fact that the share certificates are under
lock-in and the period of expiry of lock in shall be stamped in bold or
mentioned in any other prominent manner on the share certificate.
Valuation:
The sweat equity shares to be issued shall be
valued at a price determined by a registered valuer as the fair price giving
justification for such valuation.
The valuation of intellectual property rights or
of know how or value additions for which sweat equity shares are to be issued,
shall be carried out by a registered valuer, who shall provide a proper report
addressed to the Board of directors with justification for such valuation.
A copy of gist along with critical elements of
the valuation report) shall be sent to the shareholders with the notice of the
general meeting.
Non – Cash Consideration:
Where sweat equity shares are issued for a
non-cash consideration on the basis of a valuation report in respect thereof
obtained from the registered valuer, such non-cash consideration shall be
treated in the following manner in the books of account of the company-
(a) where the non-cash consideration takes the
form of a depreciable or amortizable asset, it shall be carried
to the balance sheet of the company in accordance with the accounting standards;
or
(b) where clause (a) is not applicable, it shall
be expensed as provided in the accounting standards.
Managerial Remuneration:
The amount of sweat equity shares issued shall be
treated as part of managerial remuneration, if the following conditions are
fulfilled, namely.-
(a) The sweat equity shares are issued to any
director or manager; and
(b) They are issued for consideration
other than cash, which does not take the form of an asset which can be
carried to the balance sheet of the company in accordance with the applicable
accounting standards.
Compensation for Employees:
In respect of sweat equity shares issued during
an accounting period, the accounting value of sweat equity shares shall be
treated as a form of compensation to the employee or the director in the
financial statements of the company, if the sweat equity shares are not issued
pursuant to acquisition of an asset.
If the shares are issued pursuant to acquisition
of an asset, the value of the asset, as determined by the valuation report,
shall be carried in the balance sheet as per the Accounting Standards and such
amount of the accounting value of the sweat equity shares that is in excess of
the value of the asset acquired, as per the valuation report, shall be treated
as a form of compensation to the employee or the director in the financial
statements of the company.
The Accounting value shall be the fair value of
the sweat equity shares as determined by a registered valuer.
Disclosures in Directors’
Report:
The Board of Directors shall, inter alia,
disclose in the Directors’ Report for the year in which such shares are issued,
the following details of issue of sweat equity shares namely:-
(a) The class of director or employee to whom
sweat equity shares were issued;
(b) The class of shares issued as Sweat Equity
Shares;
(c) The number of sweat equity shares issued to
the directors, key managerial personnel or other employees showing separately
the number of such shares issued to them , if any, for consideration other than
cash and the individual names of allottees holding one percent or more of the
issued share capital;
(d) The reasons or justification for the
issue;
(e) The principal terms and conditions for issue
of sweat equity shares, including pricing formula;
(f) The total number of shares arising as a
result of issue of sweat equity shares;
(g) The percentage of the sweat equity shares of
the total post issued and paid up share capital;
(h) The consideration (including consideration
other than cash) received or benefit accrued to the company from the issue of
sweat equity shares;
(i) The diluted Earnings Per Share (EPS) pursuant
to issuance of sweat equity shares.
Register of Sweet Equity
Shares:
The company shall maintain a Register of Sweat
Equity Shares in Form SH – 3 and shall forthwith enter therein
the particulars of Sweat Equity Shares issued.
The Register of Sweat Equity Shares shall be
maintained at the registered office of the company or such other place as the
Board may decide.
The entries in the register shall be
authenticated by the Company Secretary of the company or by any other person
authorized by the Board for the purpose.
Form SH – 3:
The Register of Sweet Equity Shares shall contain
following information:
(1) Reference to entry in
Register of Members
(2) Name of the Allottee
(3) Status of the allottee –
whether director or Employee
(4) Date of Passing of Board
Resolution
(5) Date of the Special
Resolution authorising the issue of sweet equity shares
(6) Date of issue of Sweet
equity shares
(7) Number of Setter equity
shares issued
(8) Certificate / Folio
Number
(9) Face Value of the
Share
(10) Face Value
of shares
(11) Price at
which the shares are issued
(12) Amount to
be treated as paid up
(13) Total
consideration paid, if any, by the employee / director; in cash or in other than
cash with particulars
(14) Lock in
period,
(15) The Date
of expiry of lock – in period
(16) Remark if
any
(17) Date of
joining of employee
(18) Fair value
obtained by Valuer
(19) Basis of
Valuation
(20) Name of
Valuer
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