The government has capped the sweat equity issue by unlisted firms at 15 per cent of their paid-up capital or maximum of up to Rs 5 crore  (Rs 50 million) and introduced a three-year lock-in period if the issue is made to employees or directors of the company itself.

However, the pricing of such issues has been left to the management of companies, provided all details of sweat equity to be issued are approved by the company's shareholders and independent valuers are employed to determine variables in case the issue is for consideration other than cash.

As per detailed guidelines notified by the Department of Company Affairs under section 79A of the Companies Act, "The company shall not issue sweat equity shares for more than 15 per cent of total paid up equity share capital in a year or shares of the value of Rs 5 crore, whichever is higher, except with the prior approval of the Central government."

Also, the guidelines provide for "sweat equity issued to employees or directors shall be locked in for a period of three years from the date of allotment."

The Department of Company Affairs had appointed a 12-member panel headed by Indian Institute of Management's professor J R Verma in August last year to finalise these norms for unlisted companies and the notification is a result of the panel's recommendations.

Listed companies are guided by market watchdog Sebi on such issues.

As per the notification, the issuing company shall maintain a register of sweat equity shares issued under section 79A.

Also, the company's board of directors shall disclose in the Directors' Report details like number of shares to be issued to employee or directors, conditions for issue of sweat equity, the pricing formula, total number of shares arising as a result of issue of sweat equity shares and money realised or benefit accrued to the company from the issue of sweat equity.

Among other things, the Verma panel had been mandated to look into issues like how much of a company's equity should be allowed under sweat equity plans; how should these deals be treated in the company's accounts, etc.

The committee also comprised a Sebi nominee.

Other members of this committee included a nominee from the Reserve Bank of India, besides two each from the Institute of Chartered Accountants of India and the ministry of commerce besides DCA officials.