Sebi relaxes sweat equity rules for new-age technology cos

Markets regulator Sebi has given relaxations on the quantum of sweat equity that can be issued by new-age technology companies listed on the Innovators Growth Platform. The development came at a time when many startups are attracting significant investments, including from overseas. In the case of IGP-listed companies, the yearly limit for sweat equity shares will be 15 per cent, while the overall limit will be 50 per cent of the paid-up capital at any time, Sebi said in a notification dated August 13.

This enhanced overall limit will be applicable for 10 years from the date of the company's incorporation.

For companies trading on the mainboard, the annual sweat equity ceiling will also be 15 per cent, but the overall limit will be capped at 25 per cent. The markets watchdog has merged two sets of regulations into one Sebi (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. Sweat equity refers to shares issued by a company to its employees for non-cash consideration. Startups and promoters typically use sweat equity to fund their companies. "The issue of sweat equity shares to employees who belong to promoter or promoter group shall be approved by way of a resolution passed by a simple majority of the shareholders in general meeting," Sebi said.

Under the new rules, the companies will have flexibility in switching the administration of their schemes from the trust route to the direct route and vice versa with the approval of the shareholders. However, this is subject to the condition that the switch is not prejudicial to the interest of the employees.