Sweat equity shares are such shares, which are issued by a company to its directors or employees at a discount or for consideration other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or ‘value additions’, by whatever name called for which the consideration is ‘not’ paid or included in the normal remuneration / monetary consideration payable
Sweat Equity Valuation is required for Accounting purpose for booking Compensation Expense by company issuing Sweat Equity’s over Vesting period and for Taxation purpose for calculation of perquisite Tax payable by its employees. The compensation expense reduces the EPS of the company and the possibility of Excess Tax payout by employees may turn the Sweat Equity scheme unattractive. Thus proper planning of Sweat Equity is inevitable and valuation plays a critical role here.
•Can be issued to Employees, Promoters, Non-Executive and Independent Directors (Preferential Allotment/Private Placement)
• Can be issued even at discount to Face Value
•Shares allotted under sweat equity gets locked-in for a period of three years from allotment, thereby serving as an effective incentive model
•In case the sweat equity takes form of an Asset, it is not treated as part of Managerial Remuneration
The accurate quantification of the intangible gains made by the Company consequent to the contribution of a person is difficult to be ascertained in absolute numerical terms and involves careful consideration and review of various parameters that directly and / or indirectly contribute to business expansion with consequent accretion in value.
Income approach is most suited to arrive at Sweat Equity Valuation. In practice, two DCF are undertaken – one values the company as such and another values the company without that person. The differential (after certain adjustments including the amount paid as Salary and attributing a certain portion to his team) could be attributed to the value additions of that person.
Valuation of IPR / Know How (For Listed Companies)
The valuation of IPR or know or other value additions shall be carried by a Merchant Banker. The Merchant Banker shall obtain a certificate from an Independent CA that such valuation is in accordance with the relevant Accounting Standards
Valuation of IPR / Know How (For Unlisted Companies)
A registered valuer (SEBI registered Merchant Banker or CA in practice having ten years of experience) shall provide a proper report addressed to the Board of directors with justification.
Valuation of sweat equity shares shall also be done by a Merchant Banker or CA in practice having ten years of experience
We have a specialized team which comes in a league of one of the best Sweat Equity Valuation Consultants and have carried out about 25 Sweat Equity Valuations. We assist our clients in discovering the value for its shareholders after validation of the company financials and that of comparable companies. We provide well-reasoned and defensive valuation reports for commercial purposes and Valuation certificates for regulatory compliance purposes. We have a dedicated team which looks into Sweat Equity transactions. Corporate Professionals has the experience and commitment necessary to provide practical and timely services as a Sweat Equity Valuation Advisor in India
