A new Section 79 A has been added to the Companies Act

Companies (Amendment) Act 1999 authorizing the companies to issue equIty shares of

the companies to the employees and directors of the company at a price lower than the market price. Such shares are called ‘Sweat Equity

Shares’. Explanation second to Sec. 79 A defines the sweat equity shares as “equity shares issued by the company to employees or directors at a

discount (to market price) or for consideration other than cash for providing knowhow or making available rights in the nature of intellectual property right

or value additions by whatever name called”. Thus, these are not an independent class of shares. They are a kind of equity shares and all provisions

relating to equity shares shall be applicable to these shares.

A company may issue sweat equity shares subject to the following conditions- .

(i) The shares must be of a class already issued by the company.

(ii) The sweat equity shares can be issued only one year after the

company was entitled to commence business.

(i i i) The issue must be authorised by a special resolution by the company in general meeting. The resolution must specify thel1umber of shares, their

current market price, consideration, if any, and the class or classes of directors or employees to whom such shares are issued.

(iv) The sweat equity shares must be issued in accordance with the guidelines issued by the SEBI in case of listed shares and Central Government

guidelines in case of unlisted companies.

(v) A subsidiary of an Indian company can issue sweat equity shares to its Indian employees even if the subsidiary is incorporated outside India.