Audit of Sweat Equity Shares (Issue at Discount)

Audit of Sweat Equity Shares (Issue at Discount)

Meaning

According to Section 53, a company shall not issue shares at a discount, except in the case of an issue of sweat equity shares given under Section 54, of the Companies Act, 2013. Sweat Equity share means equity shares issued by the company to employees or directors at a discount or for consideration other than cash for providing know-how or making available right in the nature of intellectual property rights or value additions, by whatever name called. If a company contravenes the provisions of this section, it shall be punishable with a fine not less than one lakh rupees but it may extend upto five lakhs. Moreover, the official in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

Auditors Duties

The auditor should see whether the following conditions are fulfilled in case of Sweat Equity Shares:

1. The  issue  should  be  authorized  by a  special  resolution.  The  number of shares, current market price, consideration to be received, if any, and the class of directors, employees to whom the shares will be issued should be specified in the special resolution.

2. Only after expiry of at least one year from the date of commencement of company’s business, these shares can be issued.

3. If shares of the company are listed on the stock exchange, issue of sweat equity shares will be in accordance with regulations made by SEBI.