Start-ups and other unlisted companies can rejoice with the Corporate Affairs Ministry now allowing them to issue ‘sweat equity’ shares to employees even on their joining date.

The earlier stipulation that sweat equity shares could be issued by unlisted entities only to permanent employees of a company who has been working in India or overseas “for at least last one year” has been done away with, official sources said.

Shalini Jain, Partner, People Advisory Services, EY, said the relaxation by the Ministry of Corporate Affairs (MCA) is a welcome move which will allow companies that had commenced business more than a year back to offer sweat equity shares to employees even before they complete one year of service.

Sweat equity is used to describe the non-financial investment that an employee contributes to the development of a start-up business.

Mutually beneficial

Saurav Kumar, Partner, Induslaw, a law firm, told BusinessLine that the MCA move will benefit both the company and the employee.

From a company perspective, it would benefit as it can retain talent without waiting for one year to expire before the company can issue sweat equity shares to the employee.

The move will also benefit an employee who can now look to get rewarded for the “value additions” which are actual or anticipated without waiting for one year, Kumar said.