Decoded: SEBI Relaxation On Sweat Equity Shares For Technology Companies

SEBI (Security and Exchange Board of India) is a regulatory and statutory body under the jurisdiction of the Ministry of Finance that supervises the commodities and securities in the market. Releasing and merging certain previous regulations on share-based documents, the watchdogs of securities announced updates in August related to the sweat equity shares for the technology companies.

SEBI released big updates on 6th August 2021

Sweat Equity Shares are the rewards presented to the stakeholders of a company on their sweat equity. Sweat equity suggests the company’s consideration or other non-monetary benefits to its employees, mainly when the employee adds value to the company in the form of labour or time.

The sweat equity updates for 2021 are quite revealing as they seem.

The Newly Released Updates

The meeting concluded with some critical decisions as follows:-

  • Fresh from its August meeting this year, SEBI announced relaxations on its sweat equity policies for all the new-age technological startups listed on the Innovators Growth Platform. It clearly stated that the annual limit of issuing sweat equity for the IGP-listed companies would be 15%, while the overall limit shall be 50% of the total paid-up capital at any time.
  • The enhanced limit shall be applicable for 10 years since the incorporation of the company.

Click here to know more about SEBI and its Sweat Equity in detail.

  • However, its quantum on sweat equity for the companies listed on the mainboard had a massive difference; the yearly limit to issue sweat equity shares for a company shall be no more than 15%, while for the overall limit it will be 25% of the total paid-up capital at any time.
  • The new regulations also brought a wave of joy for the employees as, up till now, these share-based privileges were extended to the apparently ‘permanent’ employees of the company. But, with the new guidelines, the ‘permanent’ word seemed missing, which reinforced that the company can issue the sweat equity shares benefits to any employee who has sincerely worked exclusively for the company and its subsidiaries.
  • The companies are also allowed to switch administration amidst the trust and direct route as per the whim and approval of the firm’s stakeholders. The SEBI pressed further to reassure that the swapping permission does not harm the interest of employees in any way regarding the sweat equity shares.
  • From the horse’s mouth, it has been revealed that the board of members also decided to relax the lock-in requirements for all the promoters, which has been reduced from 3 years to 18 months for the minimum contribution of 20% of post-issue of capital.
  • SEBI, thus, firmly extended the time of getting the inappropriate inventory trust appropriated from 1 year to 2 years, under the concern of approving compensations or nominations or certain remunerations.
  • SEBI has further decided that the sweat equity shares shall be released with all the share benefit schemes to the bereaved family members of the employee who has either died or faces permanent incapacity (as defined in the rule books of the company) during the minimum vesting period and the lock-in period. It sought to elevate the entire procedure within 1-2 years as the post-covid era weighed financial burdens.
  • SEBI has assured that the passed guidelines and provisions are always open for amendments whenever needed. The newest SEBI regulations are, in fact, the merging of two prior regulations: SBEB (Share Based Employee Benefits) Regulations of 2014 and SEBI (Issue of Sweat Equity) Regulations of 2002.

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The unlisted firms might also avail of the benefits due to the multifold implications of the provisions.

Amendments Approved By SEBI

The amendments approved by the SEBI while merging other regulations while detailing the sweat equity shares guidelines are as follows:-

  • It has significantly reduced the disclosure requirement during the time of IPO based on the listing of the company, disclosure requirement document, and rationalising the promoter group.
  • A holistic approach to transition smoothly from the ‘promoter’ concept to either ‘person in control’ or ‘controlling shareholders.’
  • Rationalising compliances have been viewed and amended for the Alternative Investment Funds (AIFs) to streamline the stability and flexibility of both the investment procedure and regulatory processes.
  • The disclosures and obligations of the 2011 Substantial Acquisition of Shares and Takeovers (SEBI) have been amended with the view of getting certain disclosure obligations to be done with.

Final Thoughts

The latest October 2021 notifications of SEBI lie under the category of gold exchange framework, social stock exchange, party transactions, delistings, and voting rights foundation frameworks. No new guidelines have been released on the sweat equity shares.

The 7 board members who serve as the watchdogs of the market have expressed their views collectively; the SEBI hopes and believes that the new decisions shall imbue investor optimism and offer better opportunities with the inclusion of other companies. If you visit this site you can know this about

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