Difference Between ESOP and Sweat Equity Shares
ESOP Definition
The term ‘Employee Stock Option’ (ESOP) has been defined under Sub-section (37) of Section 2 of the Companies Act, 2013, according to which “employees’ stock option” means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price. As discussed earlier, Section 62(1)(b) provides that a company may issue further shares to its employees under a scheme of employees’ stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed. In case of private company special resolution has been substituted by ordinary resolution. Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 with regard to issue of Employee stock options covers issue of ESOPs.
Meaning of Sweat Equity Shares
Sweat equity shares mean equity shares issued by a company to its directors or employees at a discount or for consideration, other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. Sweat equity shares are governed by the Companies Act, 2013 and are subjected to a number of conditions like –
The issue of sweat equity shares is done by passing a special resolution (form of agreement passed by of majority of not less than two-thirds of the votes cast by the shareholders).Following the issue of shares, they will be non-transferrable for a time of 3 year period.The price at which the sweat equity shares and the valuation of intellectual property rights or of know-how or value additions for which sweat equity shares are to be issued will be valued by a registered valuing.
Difference Between ESOP and Sweat Equity Shares
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