Sebi committee proposes higher sweat equity for new economy firms

Group recommends inclusion of permissible reasons for issuance along with cap on quantum to be issued in sweat equity regulations

A seven member committee appointed by the Securities and Exchange Board of India (Sebi) has batted for relaxations with respect to the quantum of sweat equity that can be issued by new economy firms listed on the Innovators Growth Platform, a public market platform for such firms that employ technology, data analytics, bio-technology or nano-technology to provide products and services extensively.

The expert group, in its 141-page discussion paper, has suggested combining two separate regulations--Sebi (Share Based Employee Benefits) Regulations, 2014, or SBEB, and Sebi (Issue Of Sweat Equity) Regulations, 2002--that deal with employee compensation.

The group recommended that the objectives for which issuance of sweat equity shares are permitted and the ceiling on the quantum issued by a company should be included in the sweat equity regulations.

It also recommended that the lock-in period for sweat equity shares and its pricing formula should be consistent with the Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2018.

The committee recommended that even non-permanent employees be considered to receive share-based employee benefits falling under SBEB Regulations.

It said that flexibility be accorded to the companies to switch routes from trust to direct route or vice versa, subject to the approval of the shareholders by special resolution and provided that such switch is not prejudicial to the interests of the employees.

The maximum time period prescribed under the SBEB Regulations for appropriation of shares not backed by grants acquired through secondary acquisition by a trust, be extended by an additional period of one year, subject to the approval of the Compensation Committee, it said. Thus, such shares may be held for two years.

Upon winding up of schemes/trust, transfer of shares or monies held by a trust should be permitted to be transferred to one or more existing share-based employee benefit schemes under the SBEB Regulations, subject to approval of shareholders.