Sweat Equity vs ESOP

Sweat Equity Shares Stock Options

Sweat Equity Shares are issued as consideration for creation or transfer of IPRs to the company or as other value addition these can be issued to employees, Officers and Directors of the Company.

ESOPs are given in the nature of Incentive and retention plan these can be issued to employees and officers. ESOPs cannot be issued to Promoter or person belonging to the promoter group.

Issue of Sweat Equity is governed by Section 54 of Companies Act, 2013, read with Rule 8 of Companies (Share Capital and Debenture) Rules, 2014.

Issue of ESOP is governed by Section 62(1)(b) of Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debenture) Rules, 2014.`

These shares can be issued at discounted price or free for know-how and services to the company.

These options can be issued with conversion right at a pre determined price. The issue price can be less than the intrinsic value of the shares.

The consideration can be partly cash and partly IPRs/value addition or fully non-cash consideration.

The consideration has to be paid in cash.

These Shares have compulsory Lock-In Period of 3 years

Lock-In period is not specified for the ESOP.

The company shall not issue sweat equity shares for more than 15% of the existing paid-up equity share capital in a year or shares of the issue value of 5 crore, whichever is higher.

There is no such restriction in case of ESOPs

Pricing Guidelines are defined for Sweat Equity Shares.

No Pricing guidelines are defined.