Question

Which of the following statements are correct in relation to sweat equity shares?
(i) They may be issued by a company to its directors at a discount.
(ii) They may be issued by a company for consideration other than cash.
(iii) They shall not be issued to the employees of the company.
(iv) They may be issued to the directors for providing know-how to the company.

• A. Only (i), (ii), and (iii)
• B. Only (i), (ii), and (iv)
• C. Only (i), (iii), and (iv)
• D. Only (ii), (iii), and (iv)

Hint:

Sweat equity shares are an exception to Section 53 of the Companies Act, 2013, which generally prohibits the issue of shares at a discount.

Answer 1

The Correct Option is B

Step 1: Understanding the Question:
The question asks for the correct statutory features of "sweat equity shares" as defined and governed by the Companies Act, 2013.

Step 2: Detailed Explanation:

• Section 2(88) of the Companies Act, 2013: "Sweat equity shares" means such equity shares as are issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions.

• Analyzing the Statements:
(i) They may be issued to its directors at a discount: This is correct under the definition and Section 54.
(ii) They may be issued for consideration other than cash: This is correct, as they are rewarded for intellectual contributions.
(iii) They shall not be issued to the employees: This is incorrect, as employees are primary eligible recipients of sweat equity.
(iv) They may be issued to directors for providing know-how: This is correct.

Step 3: Final Answer:
Statements (i), (ii), and (iv) are correct, which correspond to Option B.