Sweat Equity – In IPL Drama

Well, it is quite common in any field that new jargon is being popped up any time and we as a human being is keen to know about the meaning of those jargon or terminology. Indeed it is quite necessary to know about these jargons as we are now interacting more and reading more. Sweat Equity is commonly discussed these days thanks to IPL drama or tamasha which has become centre of discussion in every news channel we are turning to.

Well to understand the sweat equity, is basically it refers to shares given to a company’s employees or directors on favorable terms in recognition of their work. It is very common in the Multi-National companies and now we are getting used to the jargon of sweat equity. General y the management of the firm issues these shares to the employees or directors at a discount or for a consideration other than cash for providing know-how, making available rights in the nature of intellectual property rights or value additions.

The idea behind issuing sweat equity is to retain your best employees. There is no limit to the discount on share price that can be offered. Sweat equity makes employees part owners of the company and gives them a share of profits earned. The sweat equity issued during a year should not exceed 15% of the total paid-up capital of the company or a value of Rs. 5 crore in Indian context, whichever is higher. The company needs to get prior approval of the central government to go beyond this level. It is also restricted from issuing sweat equity before completing one year of incorporation.

The price of sweat equity shall be determined by an independent valuer. If shares are issued for consideration other than cash, the valuation of intellectual property or know-how shall be carried out by a valuer. Such valuer shall consult experts considering the nature of the industry and the value addition. The issue of sweat equity shares should be approved by the shareholders by means of a special resolution at a general meeting or an extra-ordinary general meeting of a company. The explanatory statement accompanying the notice of the general meeting should include reasons and justifications for such the sweat equity issue, value of such shares, the valuation report and other details.