Sweat Equity

Sweat Equity Shares are allotted to employees who have exceptionally contributed to the business with their hard work and contribution in the form of Intellectual Property Rights (IPR), know-how, value addition, skill and technical expertise. The shares issued to such employees (either at a discounted price or against the know-how contributed) are in legal parlance termed as “Sweat Equity”.

Sweat Equity comes as a productive tool for organisations in terms of cost effectiveness, taxation advantage, as an effective incentive measure, retention strategy of key employees, wider coverage of employees, less complications, minimal regulatory compliances, etc. The concept of sweat equity is even prevalent across the borders and hence comes with a dual advantage to incentivize employees in India as well as overseas, which will act as a catalyst towards growth of the business in all directions.

Therefore, Sweat Equity = Equity shares allotted to key employees, for providing:

  • » Know-how;
  • » Making available rights in the nature of intellectual property rights;
  • » Value addition.

Sweat Equity can be given to:

  • » Permanent Employees
  • » Whole-time Directors
  • » Independent Directors
  • » Promoter Directors
  • » Employee & Directors of holding & subsidiaries

Key Requisitions

  • » Shareholders’ approval required
  • » Allotment shall be made within 1 year of approval
  • » Lock-in for 3 years after allotment
  • » Valuation to be done by registered valuer
  • » Disclosure to be given in Director’s Report annually
  • » Sweat Equity register to be maintained

Benefits of Sweat Equity

  • » Reward for exception value additions for key employees
  • » Motivational Incentive tool
  • » Non-cash compensation tool for employer
  • » Free of cost share acquisition by employees
  • » Long term Wealth creation for employees
  • » Benefits in terms of Long term Capital Gains

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Ms. Mohini Varshenya

Partner & Head-ESOP Services

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