Sweat Equity Rules: SEBI

Sweat Equity Rules: SEBI

Part of: GS Prelims and Mains GS-III – Economy 

Context: Recently, 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.

• SEBI has merged the SEBI (Share Based Employee Benefits) Regulations, 2014 (SBEB Regulations) and the SEBI (Issue of Sweat Equity) Regulations, 2002 (Sweat Equity Regulations).
• SEBI is a statutory body established in accordance with the provisions of the SEBI Act, 1992. Its basic function is to protect the interests of investors in securities and to regulate the securities market.

What is Sweat Equity? 

• Sweat equity is a non-monetary contribution that the individuals or founders of a company make towards the company.
• Cash-strapped startups and business owners typically use sweat equity to fund their companies.
• It will be issued for providing the know-how or making available rights in the form of intellectual property rights or value additions.
• The maximum yearly limit that can be issued by a listed company has been prescribed at 15% of the existing paid-up equity share capital 
• It will be applicable for 10 years from the date of the company’s incorporation.