Sweat Equity Shares Issuance
Reward a founder, director or key employee for know-how, IP contribution, or value addition - with shares instead of cash, issued through a proper valuation and compliant structure.
Sweat equity issued in a year is capped at 15% of paid-up capital or ₹5 crore, whichever is higher.
Total sweat equity cannot exceed 25% of the company's paid-up capital at any point.
A registered valuer must value both the shares and the IP/know-how being compensated.
Sweat equity shares carry a mandatory lock-in period before they can be transferred.
Structured to survive scrutiny.
We confirm the recipient's eligibility and that the issuance stays within annual and lifetime caps.
We coordinate a SEBI-registered valuer to value both the shares and the contribution being rewarded.
Shareholder approval obtained and sweat equity agreement drafted.
Shares allotted, cap table updated, and PAS-3 filed with the Registrar.
Part of Layer 2 - EquityOps, for both setup tracks.
A technical co-founder contributing IP pre-incorporation is often better rewarded through founder equity structuring - we help decide which route fits.
Start your setup →Rewarding a key employee's contribution after the fact? We structure and issue sweat equity properly within your existing cap table.
Run your diagnostic →Common questions
Sweat equity rewards a specific, already-delivered contribution (know-how, IP, value addition) with an immediate share allotment; equity incentives grant a right to purchase shares in the future, typically vesting over time as an ongoing incentive.
Permanent employees and directors of the company (including a holding or subsidiary company) who have provided know-how, made available intellectual property rights, or added value to the company's business are eligible.
Yes - the fair market value of sweat equity shares is taxable as a perquisite in the recipient's hands at the time of allotment, with capital gains tax applying on a later sale. We coordinate with our CA partner on this.
A company generally must have completed one year from commencement of business before issuing sweat equity, with limited exceptions for certain startups recognized by DPIIT.
A registered valuer assesses the value of the know-how, IP or value addition being compensated, alongside a separate valuation of the shares - both are needed to justify the number of shares issued and the price.
Yes, once allotted and beyond the lock-in period, sweat equity shares generally carry the same rights as ordinary equity shares of the same class, unless structured otherwise in the company's articles.