The Telegraph
Since 1st March, 1999
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Sweat equity to have lock-in for three years

Mumbai, Oct. 3 (PTI): The Securities and Exchange Board of India (Sebi) today said shares issued as sweat equity to employees and directors will have a lock-in period of three years while their pricing should be done according to a formula similar to the one used for preferential allotments.

According to the new guidelines for listed companies issuing sweat equity, their value would be taken into account for purpose of ceiling on the managerial remuneration in certain circumstances, Sebi said in a release here today.

Sweat equity is shares acquired by a company’s executives on favourable terms, to reflect the value the executives have added and will continue to add to the company.

The panel headed by former Sebi member J. R. Verma on formulating guidelines for sweat equity submitted its report in June 2002 and the Sebi (issue of sweat equity) Regulations 2002 were notified on September 24, 2002, the release said.

The valuation of consideration provided in the form of intellectual property rights / knowhow or other valuation should be done by a merchant banker.

The new gudielines would also deal with accounting treatment pertaining non- cash consideration for sweat equity.

If the sweat equity was to be issued to promoters, who are either employees or a director, the facility of postal ballot should be given to the shareholders and currency of such resolution be 12 months, the release added.

The market regulator was empowered to order inspection, investigate and take follow up actions including issuing directions under the new regulations, it said.

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