Context
The Securities and Exchange Board of India (SEBI) has brought into effect the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. The regulations have widened the scope of employees who can be offered stock (equity) options.
What is sweat equity share?
- As per 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, by whatever name called.
Key-changes
- Share-based employee benefits: Companies will now be allowed to provide share-based employee benefits to employees, who are exclusively working for such a company or any of its group companies including a subsidiary or an associate.
- Broadened eligibility criteria: Under the earlier regulations, only permanent employees of the company and its holding and subsidiary companies were eligible for share-based benefits.
- The new regulations broaden this by deleting the word “permanent” and also permitting employees of group/associate companies.
- Time-period for approval: The new regulations have extended the time period for appropriating the unappropriated inventory of shares held by the trust from the existing one year to two years, subject to the approval of the Compensation Committee/ Nomination and Remuneration Committee.
- Merging: The Securities and Exchange Board of India approved the merger of the SEBI (Share Based Employee Benefits) Regulations, 2014 (SBEB Regulations) and the SEBI (Issue of Sweat Equity) Regulations, 2002 (Sweat Equity Regulations) into the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.
Applicability
- These will be applicable only to listed companies as these have been framed by SEBI, which only regulates listed companies.
- For unlisted companies, any change needed will have to be brought into the Companies Act 2013.
