Issue of Sweat Equity Shares - Section 79-A of Indian Companies Act, 1956

Section 79-A has been inserted to The Companies (Amendment) Act 1999 w.e.f from October 31, 1999 providing for the issue of Sweat Equity Shares. "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 name called.

According to Section 79-A of Indian Companies a company may issue sweat equity shares of class of shares already issued if the following conditions are satisfied:
(a) the issue of sweat equity shares is authorized 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 recognized stock exchange are issued in accordance with the regulations made by the Securities and Exchange Board of India in this behalf.

This is an attractive plan to retain human talent and for the financial health and welfare of employees. Employees will also have the feeling that their hard work is being rewarded. Issue of Sweat Equity Shares is a very good option to motivate the employees and make them feel that they are also proud owners of the company.