Govt Allows Startups To Issue Sweat Equity For 10 Years After Registration

Start-ups can now issue equity shares to their employees for up to 10 years from the date of their incorporation or registration.

The Ministry of Corporate Affairs (MCA) has amended the Companies (Share Capital and Debentures) Rules, 2014, to allow start-ups to issue sweat equity shares not exceeding 50 per cent of its paid-up capital.

The earlier limit of five years was changed to bring the MCA provision in line with the Department for Promotion of Industry and Internal Trade’s order.

Industry experts say the move will help start-ups better incentivise their staff and retain talent. This will also act as an alternative medium of compensation for employees and avoid pay cuts.

“Any help to companies and employees in terms of seat equities will help in retention of talent, and the entire ecosystem will, then, benefit considerably,” said Naganand Doraswamy, managing partner Ideaspring Capital, a venture fund and a start-up mentor.

Usually, start-ups issue sweat equity to their employees or directors against any form of intellectual property or technical knowhow without any vesting period. Employee Stock Options allotment, on the other hand, is linked to employees’ performance and based on completion of the vesting period.

Source: Business Standard

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