ESOP AND SWEAT
EQUITY UNDER COMPANIES ACT 2013
(BENEFIT TOOLS
FOR THE EMPLOYEES OF THE COMPANIES)
ESOPs and Sweat equity shares are
the management techniques (tools) offered by the companies which act as an
incentive scheme to the professionals of such companies.
·
CORE POINTS ON ESOPS AND SWEAT
EQUITY-
“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, by whatever name called.”
The term ‘know-how’ is not
restricted to technical know-how but can extend to practical knowledge, skill
and expertise. Hence, imparting practical knowledge to the company would
be considered as value addition. (“Value Addition”
means actual or anticipated economic benefits derived or to be derived by the
company from an expert or a professional for providing know how or making
available rights in the nature of intellectual property rights, by such person
to whom sweat equity is being issued for which the consideration is not paid or
included in the normal remuneration payable under the contract of employment,
in the case of an employee.)
“Employee
Stock Option Plan (ESOP) )“employee
stock option” means the option given to the whole-time Directors, Officers or
employees of a company which gives such Directors, Officers or employees, the
benefit or right to purchase or subscribe at a future date, the securities offered
by the company at a predetermined price .
The consideration for ESOP can be decided by company
based upon the value of company, which may be just face value also.
It is a benefit plan for employees
which make them owners of stocks in the company. This scheme is used by the
companies to reward, motivate, remunerate and retain their employees.
Sweat Equity can be issued to the
promoters of the Company whereas ESOS/ESOP cannot be issued to the promoters or
promoter group.
ESOP
and Sweat Equity are governed by Section 62 and Section 54 respectively of the
Companies Act 2013 read with the rules made thereunder.
·
Difference in the meaning of
Employees for the purpose of ESOPs and Sweat Equity-
FOR
ESOPs
“Employee”
means
a) A
permanent employee of the company who has been working in India or outside
India; or
b) A
director of the company, whether a whole time director or not but excluding
an independent director; or
c) An
employee as defined in sub-clauses (a) or (b) of a subsidiary, in India or
outside India, or of a holding company but does not include-
(i) an employee who is a promoter
or a person belonging to the promoter group; or
(ii)a director who either by
himself or through his relative or through any body corporate, directly or
indirectly holds more than 10% of the outstanding equity shares of the
company.
FOR
SWEAT EQUITY
a) A
permanent employee of the company who has been working in India or outside India, for at least one year; or
b)
A director of the company, whether a whole time
director or not; or
c) An employee or a director as defined in sub-clauses
(a) or (b) above of a subsidiary, in India or outside India, or of a holding
company of the company.
