A company may receive certain services from the service provider, such as advisor, or contractor and instead of paying them cash, may settle the consideration by issuing fully paid shares of the company. This type of issue of shares to the vendors is called issue of shares for consideration other than cash.

The issuance of shares to service providers in exchange for consideration other than cash is a common practice in the corporate world. This arrangement allows companies to compensate individuals or entities for their services while preserving their cash resources.

The shares are allocated to the service provider based on their value or as agreed upon in the contractual agreement. If the service provider agrees to it, the company issues him the fully paid shares. Usually, the company receives no cash in respect of these shares. A company may issue these shares at par or at a premium. The company calculates the number of shares on the basis of the amount payable to the vendor. Thus,

Number of shares= Amount Payable to the service provider / Issue Price of the shares

Let’s understand the ways in which a Company can issue shares to Service provider for consideration other than cash.

Preferential Allotment-

• Preferential allotment refers to the process where shares are allotted to specific parties, like a company or group of people, interested on a preferential basis at a predetermined price. Provisions under section 62 (1) (c) read with rule 13 of Companies (Share Capital and Debentures) Rules, 2014 read with rule 14 Companies (Prospectus and Allotment of Securities) Rules, 2014 must be followed by the company when issuing shares.

• Such issue must be authorized by Special Resolution passed in General Meeting.

• Price of such shares or other securities to be issued for cash or for consideration other than cash is determined by Valuation Report of Registered Valuer.

• Marketing and Pre-sales Technical Support Services will be Classified as Intermediary Services and GST will be applicable on provision of such service.

Employee stock Option/ Sweat Equity Shares

If the service provider is providing Services as Employee of the Company, the service provider shall be paid a fixed amount of Remuneration for its services and shares will be issued as an incentive. Shares can be issued under following two routes

1. Employee stock Option- There shall be a minimum period of one year between the grant of options (when company offer ESOP) and vesting of option (when securities are allotted). The companies granting option to its employees pursuant to Employees Stock Option Scheme will have the freedom to determine the exercise price in conformity with the applicable accounting policies, if any.

2. Sweat Equity Shares- Sweat Equity Shares are issued as consideration for creation or transfer of intellectual Property Rights to the company or as other value addition. Pricing guidelines are defined for Sweat Equity shares which are required to be determined by a registered valuer

Issuing shares to service providers can align their interests with the long-term success of the company. By becoming shareholders, they have a stake in the company’s performance and are motivated to contribute to its growth and profitability.

Contact us for automating all your applicable MCA Regulations through our TaskMaster® product - a comprehensive solution designed to simplify and streamline corporate compliance management and tracking process, ensuring that we are always on top and in control of statutory obligations with ability to configure industry-specific compliances and internal requirements/tasks for any specific project management purposes.

Any comments / feedback / corrections, most welcome. Please contact:

Team Complinova

https://www.complinova.com/

Mobile: +91 95773 96773

Email:contact@complinova.com