Pride Pvt. Limited, a start-up by a few qualified professionals, was incorporated in 2018. The company is booming and favouring the younger…

(a) Issue of Sweat Equity Shares: As per section 53, a company shall not issue shares at a discount, except as provided in section 54. Section 54 of the Companies Act, 2013 states that sweat equity shares are issued to keep the employees of a company motivated by making them partner in the growth of the company. Section 54 mentions the provisions which need to be adhered to by a company if it desires to issue sweat equity shares. Conditions: According to section 54 (1) , a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled, namely- (a) the issue is authorised by a special resolution passed by the company; (b) the resolution specifies the number of shares, the current market price, consideration, if any, and the class or classes of directors or employees to whom such equity shares are to be issued. Limit on issue of Sweat Equity Shares: According to proviso to Rule 8 (4) of the Companies (Share Capital & Debentures) Rules 2014, w.r.t a start-up company, it may issue sweat equity shares not exceeding fifty percent of its paid-up capital up to ten years from the date of its incorporation or registration. Lock-in Period: Rule 8 (5) of the Companies (Share Capital & Debentures) Rules 2014, states that the sweat equity shares issued to directors or employees shall be locked in/non-transferable for a period of three years from the date of allotment. Accordingly, in the given instance, (i) Size of issue of sweat equity shares was appropriate, as the decision of the company to issue 30% sweat equity shares to a class of directors and employees was within the prescribed limit of 50% (in case of startup company). Resolution containing 15 lakh sweat equity shares was also within the limit of 25 lakh sweat equity shares (i.e.,50% of paid-up capital) with the details as to the current market price and with the consideration to be issued. (ii) No, as per law, lock-in period will be of three years from the date of allotment. Here, it states five years which is against the law.