IT Taskforce
Basic Background  Report
(BR-2)
8th August 1998



IX. COMPANY LAW ISSUES

(i) Nearly 40% of the employees in the hardware industry are engaged in the development of software and hence, it is critical that the stock option plan extended to the software industry employed is also made available to the hardware industry employees.

Employees Stock option schemes for stock listing in India would also be encouraged. Also, clarification shall be issued that income tax is applicable only at the time of sale and not at the time of exercise of option.

Dollar Linked Stock Options to employees on Indian Software companies were announced in the 1998 Budget and detailed guidelines on this have been issued by DEA, Ministry of Finance. This shall be modified in accordance with the definition of IT products and IT services given under (19)(a) and (b) above.

(ii) For Sweat Equity, an additional new proviso shall be added to Clauses 73 and 74(7)(6) of Companies Bill, 1997: 'The IT Hardware Companies in India or their subsidiaries abroad may also issue Sweat Equity to their Promoter-Directors or whole time Directors or employees for providing any know-how, intellectual property or value addition to the Company on exclusive basis on such terms and conditions as may be prescribed by SEBI or the Central Government as the case may be. A new definition No.(66) will be added after definition No(65) in Clause 2 as under as "(66) Sweat Equity means equity allotted to promoter-Directors, whole time Directors or employees for providing any know-how, intellectual property or value addition to the Company."

Amendments shall also be made in the Company Law to provide for buy-back of shares as well as differential pricing of shares..