short notes

Short Notes
1) Rolling Settlement :-
Under this rolling settlement, unlike in the “account period settlements” the trades done on a particular day are settled after a given number of business days instead of settling all trades done during an “account period” of a week or fortnight. In the prevailing T+2 settlement cycle, the final settlement of transactions done on T i.e. trade day by exchange of monies and securities between the buyer and sellers respectively takes place on second business day (excluding Saturdays, Sundays, bank and exchange trading holidays) after the trading day.
In case of Rolling Settlements, pay in and payout of both funds and securities is completed on the same day. Each trading day is considered as a trading period and trades executed during the day are netted to obtain the net obligations for the day in a rolling settlement.

2) Whistler Blower Policy:-
A Company may establish “whistler Blower Policy” for its employees to enable them to report to the managements concerns about the unethical behavior, actual or suspected fraud or violations of the companies code of conduct or ethics policy. The policy should provide for adequate safeguard against victimization of employees who avail of the mechanism and also provides for direct access to the chairmen of the Audit committee in exceptional cases. Once established, the existence of the mechanism of Whistler Blower should appropriately be communicated within the organization. Whistler Blower policy is also one of the non-mandatory requirements of the revised clause 49 of the listing agreements.

3) Indian Depository Receipt:-
Indian Depository Receipt means any instrument in the form of a depository receipt created by domestic depository in India against the underlying equity shares of issuing company. Domestic depository for the purpose means custodian of securities registered with SEBI and authorized by the issuing company to issue Indian depository receipts. Overseas custodian banks in respect of issuance of IDR is a banking company which is established in a country outside India and has a place of business in India and acts as custodian for the equity shares of issuing company against which IDRs are proposed to be issued after having obtained permission from ministry of Finance for doing such business in India.
4) Money Market Mutual Funds:-
In India, the decision to promote MMMF was announced by RBI while unveiling its credit policy in April 1991. MMMF is a scheme of a mutual fund setup with the objective of investing exclusively in money market instruments. These funds invests in short-term debt securities in the money market like certificates of deposits, commercial papers, Govt. treasury bills etc., Owing to there large size, the funds normally get a higher yield on such short term investments than an individual investor. MMMF are regarded as high liquidity oriented as investors attach more value for safety and liquidity. MMMF used to be regulated by the RBI on the basis of specified guidelines to be laid down by the RBI. However, w.e.f. march 7,2000 RBI withdrew these guidelines and it was notified by SEBI later on that the MMMF schemes, like other mutual funds schemes would exclusively governed by SEBI (mutual funds) Regulation 1996.

5) Straight Through Processing:-
Straight Through Processing (STP) is generally understood to be a mechanism that automates the end to end processing of transactions of financial instruments. It involves use of a system to process or control all elements of the workflow of a financial transaction, what are commonly known as the front, middle, back office and general ledger. In other words, STP allows electronic capturing and processing of transactions in one pass from the point of order origination to final settlements. STP thus, streamlines the process of the trade execution and settlement and avoids manual entry and re-entry of the details of the same trade by different market intermediaries and participants. Usage of STP enables orders to be processed confirmed, settled in a short time period and in a more cost effective manner with fewer errors. Apart from compressing the clearing and settlement time STP also provides a flexible, cost effective infrastructure which enables e-business expansion through online processing and access to enterprise data.

6) Capital Indexed Bonds:-
Capital Indexed Bonds are bonds where interest rate is fixed percentage over the wholesale price index. Capital Indexed Bonds are therefore call inflation-protection securities such bonds provide good hedge against inflation risk. The benefits do extend beyond hedging. Capital indexed bonds can be used as a market indicator inflation expectation. This help investors to make a move intelligent decisions on their current consumption. Finally the spot yield curve can be better constructed based on the real yields

7) Unique Identification Number:-
SEBI (Central database of market participants) regulations, 2003 requires every specified intermediary, other entity. Specified listed company and specified investor to make application for allotment of Unique Identification Number for itself and for its related persons. Unique identification number means the identification number generated in central database for and allotted to each applicant under the regulations. Specified intermediaries, investors, listed company mean such intermediaries are other entities as may be specified by SEBI in the notification published in the official gazette pursuant to regulations. Till date, almost all the intermediaries have been specified for obtaining unique identification number. However, SEBI suspended all registration for unique identification number from July 1st 2005 following the recommendation of the Sebi committee to examine issues relating to MAPIN.

8) Sweat equity shares:-
Sweat equity shares are shares allotted to employees of companies, as rewards, free cost or at a price which is considerably below the rolling market price it is given as a reward for performance to further encourage them to put in their best in the organization. Under the companies act 1956, Sweat equity shares means shares issued by a company to its employees or directors at the discount or consideration other than cash for providing know how or making available rights in the nature of intellectual property rights.
Sweat equity shares are used as a tool for retaining experienced personal at senior level. The increase in competition has increased the fear of losing personal to a competitor the concept of sweat equity shares is gaining popularity these days in information technology, telecom and knowledge based economic sectors.

9) Capital market vs money markets:-
The capital market is a market for financial investments that are direct or indirect claims to capital. It is wider than the securities market and embraces all form of lending and borrowing the capital market comprises the complex of institutions and mechanisms through which intermediate term funds and long term funds are pooled and made available to business, government and individuals. The capital market also encompasses the process by which securities already outstanding are transferred.
The money market refers to the market where borrowers and lenders exchange short term funds to solve their liquidity needs. Money market instruments are generally financial claims that have low default risk maturities under one year and high marketability.

10) Carrot and stick bond:-
In Carrot and Stick Bonds, carrot is the lower than normal conversion premium i.e. the premium over the present market price of the equity shares is fixed at a reasonable level so that the price of the equity shares need not increase significantly to make conversion practical. The stick is the issuer’s right to call the issue at a specified premium if the price of the equity shares is traded above a specified percentage of the conversion price.

11) Basket trading system:-
The Bombay Stock Exchange provides the investors as well as its member brokers a facility of Basket Trading System, with a view to provide investors the facility of creating sensex linked portfolio and also to create a linkage of market prices of the underlying securities of sensex in the cash segment and futures on sensex. In this system the investors through the member brokers of the exchange are able to buy or sell all 30 scrips of sensex in one go in the proportion of their respective weights in the sensex. The investors can also create their own baskets by deleting certain scripts from 30 scripts in the sensex.

12) Employees stock option:-
Employee Stock Option means the option given to the whole-time directors, officers or employees’ of a Company which gives them the right to purchase or subscribe at a future date the securities offered by the company at a pre-determined price. Employee stock option plays vital role in rewarding and motivating employees in attracting and retaining the best talent in the company.
13) Collective investment scheme:-
Collective Investment Scheme (CIS) under SEBI (Collective Investment Schemes) Regulations, 1999 means any scheme or arrangement made or offered by any company under which:
(a) The contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement.
(b) The contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable from such scheme or arrangement.
(c) The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; and
(d) The investors do not have day-to-day control over the management and operation of the scheme or arrangement.
The CIS Regulations, however, excludes any scheme or arrangement made or offered by a co-operative society, deposits accepted by non-banking financial companies; contract of insurance; deposits accepted under section 58A of the Companies Act, 1956 etc.

14) Ombudsman in stock market:-
“Ombudsman” means any person appointed under regulation 3 of SEBI (Ombudsman) regulations, 2003 and unless the context otherwise requires, includes stipendiary Ombudsman. Regulation 2(n) of the Regulations defines stipendiary ombudsman as a person appointed under Regulation 9 for purpose of acting as Ombudsman in respect of a specific matter or matters in a specific territorial jurisdiction and for which he may be paid such expenses, honorarium, sitting fees as may be determined by the board from time to time.
An Ombudsman has crucial role to pay in redressal of investors grievances. Any person who has a grievance against a listed company or any intermediary relation to the of the matters specified in SEBI (Ombudsman) regulations may himself or through his authorized representative or any investors association recognized by SEBI, make a complaint to the ombudsman within whose jurisdiction the registered or corporate office of such listed company or intermediary is located. If SEBI has not notified any Ombudsman for a particular locality or territorial jurisdiction, the complainant may request the Ombudsman located at the Head Office of the SEBI for forwarding his complaint to competent jurisdiction. The powers and functions of Ombudsman have also been defined under the said Regulations.

15) Exchange Traded Funds:-
Exchange traded funds ETFs represent a basket of securities that are traded on an exchange. They are similar to index mutual funds but are traded more like a stock. They are a rapidly growing class of financial products and are typically organized as unit trusts. ETFs can be bought and sold throughout the trading day, allowing for intraday trading-which is rare with mutual funds. Unlike mutual funds ETFs do not trade necessarily at the net asset values of their underlying holdings, meaning an ETF could potentially trade above or below the value of underlying portfolios.

16) Central Listing Authority:-
Regulation 3 of sebi (Central Listing Authority) Regulations prescribes for the establishment of an authority to be called the “central listing authority” with the functions delegated to it by SEBI. It provides that the head office of the authority is to be located in Mumbai. However, the authority may, with prior approval of SEBI, establish such branch or regional officers as may necessary the authority has been empowered to perform the following functions:-
1) To receive and process application for letter precedent to listing from applicants and issue, if it is deems fit, a letter precedent to listing to any such applicant
2) To make recommendations to SEBI on issue pertaining to the protections of the interest of the investors in securities and development and regulation of the securities market, including the listing agreements, listing conditions and disclosers to be made in offer documents.
3) To undertake any other functions as may be delegated to it by SEBI from time to time.

17) Electronic Data Information Filing and Retrieval System:-
This is an automated system for filling, retrieval and dissemination of time sensitive corporate information, which till now were being filed physically by the listed companies with the stock exchanges in India. By centralizing the information through on-line filing, EDIFAR’s primary objective is to centralize the information and accelerate its dissemination and doing so enhance the transparency and efficiency for the benefit of all the stake holders in the securities market.

18) Qualified Institutional Buyers:-
QIB are “Qualified institutional Buyers”. According to the SEBI (Disclosers and investor protection) guidelines, 2000 following are the QIBs
· Public financial institutions as defined in section 4A of the companies Act, 1956
· Scheduled commercial banks
· Mutual funds
· FII registered with SEBI
· Multilateral and bilateral development financial institutions
· Venture capital funds
· Foreign venture capital investors
· SFCs
· Insurance companies registered with IRDA
· Provident funds with minimum corpus of Rs 25 crores
· Pension funds with minimum corpus of Rs 25 crores
These entities are not required to registered with SEBI as QIBs. Any entities falling under the categories specified above are considered as QIBs for the purpose of participating in the primary issuance process.

19) Money at Call and Short notice:-
Money at call is outright money. Money at short notice is for maturity of or up to 14 days. Money for higher maturity is know as inter-bank deposits. The participants are banks and all India financial institutions are permitted by RBI. From April 1991, corporate with specified minimum lendable resources for transaction have also been permitted to lend in the market through DFHI.
The market is an over-the-telephone market. Non-bank participant at as lenders only. Banks borrow for a variety of reasons to maintain there CRR, to meet heavy payments (ex: withdrawals by customers for payment of taxes), to adjust their maturity mismatch etc. there are days of heavy borrowings on these occasions. Consequently depending upon supply, interest rates show wide fluctuations. Corporate treasury management is not as sophisticated as in industrialized countries and through the cash credit system transfers their liquidity management to their banker who in turn resorts to the call money market.

20) Commodity Bonds:-
Commodity bonds are bonds issued to share the risk and profitability of the future commodity prices with the investors. For example petro bonds, silver bonds, gold bonds and coal bonds
A petro bonds may carry a fixed rate of interest with part of the face value of the bonds denominated in barrels of oils. There would be a floor in the face value of the bond. In view of the upside profit potential in oil prices the interest rate could be lower than market rate of interest these bonds may be issued decontrolled items.















Distinguish between
1. Foreign Direct Investment and Foreign Institutional Investment:-
Foreign Direct Investment (FDI) is of a permanent nature. FDI is that category of international investment that reflects the objective of obtaining a lasting interest by a resident entity in one economy in an enterprise resident in another economy. The investor and the enterprise and a significant degree of influence by the investor in the management of the enterprise.
Foreign Institutional Investment is money which chases the stocks in the market place. Foreign institutional investors are specialized financial intermediaries managing savings collectively on behalf of investors, especially small investors, towards specific objectives in terms of risk, returns, and maturity of claims. FII is to be welcomed with strict political and economical discipline.

2. Front-end Load and Back-end Load:-
Front-end load is a one time fixed fee which is paid by an investor while he buys into a scheme.
Back end load is a fixed fee redemption load or a contingent deferred sale change. A redemption load exists permanently and is paid only at the time of redeeming or selling units of a load.

3. Dematerialization and re-materialization:-
Dematerialization is a process of either issue of dematerialized securities or conversion of physical share certificates into distinctive numbers in electronic form. In of conversion, the physical share certificates from the investor are taken back by the company and an equivalent number of securities are credited to his account opened with a depository participant in electronic form at the request of the investor.
Holding of shares in Dematerialised form in the hands of investors is optional and an investor can still hold shares in physical form. Therefore, the investor who has dematerialized shares with him can send Rematerialisation Request Form to DP for conversion of his shares to the physical share certificates. The process of such conversion is known as dematerialization.

4. French Auction and Dutch Auction:-
There are two types of auction for treasury bills. In French Auction, also known as Multiple Price Based Auction, all bids equal to or above the cut-off price are accepted. However, the bidder has to obtain the treasury bills and is valid only for competitive bidders.
In Dutch auction, also known as Uniform Price Based Auction, all the bids equal to or above the cut-off price are accepted at the cut-off level. However, unlike the Multiple Price based method, the bidder obtains the treasury bills at the cut-off price and not the price quoted by him. This method is applicable in the case of 91 days treasury bills only. The system of Dutch auction has been done away with by the RBI w.e.f. 08.12.2002 for the 91-day treasury T Bill.

5. Online Surveillance and Off-line Surveillance:-
Online Real Time Surveillance is a system which was commissioned in 1999 with main objectives of detecting potential market abuses at a nascent stage to reduce the ability of the market participants to unduly influence the price and volumes of the scrips traded at the exchange, inprove the risk management system and strengthen the self regulatory mechanism at the exchange. The system has a facility to generate the alerts online, in real time, based on certain preset parameters like price and volume variations in scrips, members taking unduly large positions not commensurate with their financial position or having large concentrated positions(s) in one or few scrips, etc.
The Off-Line Surveillance system comprises of the various reports based on different parameters and scrutiny thereof. The Surveillance actions or investigations are initiated in the scrips identified from the reports such as High/Low Difference in prices, Percentage of change in prices over a week/fortnight/month, Top scrips by Turnover, Trading in infrequently traded scrips and scrips hitting New High/Low.

6. Money at call and money at short notice:-
Money at call is outright money. Money at short notice is for maturity of or upto 14 days. Money for higher maturity is known as inter-bank deposits. The participants are banks and all india financial institutions as permitted by RBI. From April1991, corporate with specified minimum lendable resources for transaction have also been permitted to lend in the market through the DFHI.
The market is an over-the-telephone market. Non-bank participants act as lenders only. Banks borrow for avariety of reasons to maintain their CRR, to meet heavy payments (e.g. withdrawals by customers for payment of taxes), to adjust their maturity mismatch etc. there are days of heavy borrowings on these occasions. Consequently, depending upon supply, interest rates show wide fluctuations. Corporate treasury management is not sophisticated as in industrialized countries and through the cash credit system transfers their liquidity management to their banker who in turn resorts to the call money market.

7. Immobilization and Dematerialisation:-
Immobilization of securities occurs when physical security certificates are stored or lodged with depository for safe custody. All subsequent transaction in these securities take place in book-entry form. The actual owner has the right to withdraw their physical securities as and when desired. The immobilization of fresh issue may be achieved by issuing a jumbo certificate representing the entire issue in the name of depository, as nominee of the beneficial owners.
Dematerialization is the process by which shares in the physical/paper form are cancelled and credits in the form of electronic balances are maintained on highly secure systems at the depository.

8. Leverage funds and hedge funds:-
Leverage funds also known as borrowed funds, increase the size and value of portfolio and offer benefits to members through excess of gains over cost of borrowed funds. They tend to indulge in a speculative trading and risky investments.

Hedge Funds employ their funds for speculative trading, i.e. for buying shares whose prices are likely to rise and for selling shares whose prices are likely to dip. Hedge funds use a wide variety of trading strategies involving position-taking in a range of markets. They employ as assortment of trading techniques and instruments, often including, short-selling, derivatives and leverage.



9. Futures and options:-
A contract obliging one signatory to buy and another to sell a standard quality of a financial instrument on a pre-determined price. Futures may be commodity futures or security futures.
A contract which gives the holder the right to purchase (call)or sell (put) the underlying futures contract or security at a specified price within a specified period of time. Options may be Put or cal options.

10. Income oriented schemes and growth oriented schemes:-
Income oriented scheme primarily offer fixed income to investors. Naturally enough, the main securities in which investments are made by such funds are the fixed income yielding ones like bonds.
growth oriented schemes offer growth potentialities associated with investment in capital market namely: (i) high source of income by way of dividend and (ii) rapid capital appreciation, both from holding of good quality scrips. These funds, with a view to satisfying the growth needs of investors, primarily concentrate on the low risk and high yielding spectrum of equity scrips for the corporate sector.

11. Bull and Bear:-
Bull is an investor who thinks the market, a specific security or an industry will rise. Bulls are optimistic investors that predict good thing for the market. Bear is an investor who acts on the belief that a security or the market is falling or is expected to fall. Bears are the pessimistic investors that predict bad things for the market. Bear market is a weak or falling market characterized by the dominance of sellers. Whereas bull market is a rising market with abundance of buyers and relatively few sellers.

12. Reduction of capital and Buy-back of Capital:-
A company limited by the shares or a company limited by guarantee and having share capital can if authorized by its articles, its articles, by special resolution and subject to confirmation by the court on petition reduce its share capital. It may effect reduction of its share capital in any of the circumstances as prescribed in the Companies act, 1956.
Buy back of shares can be made by a company in accordance to the provision of Section 77A, 77B. in case of a listed company, SEBI (Buy back of Securities) Regulations, 1998 are also required to be complied with.
Reduction of capital can take place without the sanction of the court whereas Buy-back can only be upto 25% of the total paid up capital and free reserves of the company.

13. Put option and Call option:-
Put option contract conveys the right to sell a standard quantity of a specified asset at a fixed price per unit (the strike price) for a limited length of time (until expiration).
Call option contract conveys the right to buy a standard quantity of a specified asset at a fixed price per unit ( the strike price) for a limited length of time (until expiration).

14. Dematerialisation and Immobilisation:-
Dematerialisation is the process by which shares in the physical/paper form are cancelled and credit in the form of electronic balances are maintained on highly secure systems at the depository.
Immobilization of securities occurs when physical security certificates are stored or lodged with depository for safe custody. All subsequent transaction in these securities take place in book-entry form. The actual owner have the right to withdraw their physical securities as and when desired. The immobilization of fresh issue may be achieved by issuing a jumbo certificate representing the entire issue in the name of depository, as nominee of the beneficial owners.






Observations
1) CDSL:- The Central Depository Services (India) Limited
2) FCCB:- Foreign Currency Convertible Bonds
3) ICRA:- The Investment Information Credit Rating Agency in India Ltd.
4) GDR :- Global Depository Reciepts
5) BOLT:- BSE On-Line Trading
6) SPN :- Secured Premium Note
7) CBOE:- Chicago Board of Options Exchange
8) ESPS:- Employees Stock Purchase Scheme
9) OMO:- Open Market Operations
10) SMILE:- Securities Market Infrastructure Leveraging Expert
11) KYC :- Know Your Clients
12) CARE:- Credit Analysis & Research Limited





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SHORT NOTES
Shelf Prospectus
A new section 60A has been inserted by the Companies (Amendment) Act, 2000. “Self Prospectus” means a prospectus issued by any financial institution or bank for one or more issues of securities or class of securities specified in the shelf prospectus. The financial institutions/banks are not required to issue prospectus every time they offer shares to the public within the period of validity of such shelf prospectus which is one year from the date of opening of the first issue of securities. A company filing a shelf prospectus shall be required to file an information memorandum along with shelf prospectus. This concept will save expenditure and time of the companies in issuing a prospectus every time they wish to issue securities.

Modes of Acquiring Membership
As per section 41 of the Companies Act, 1956, membership of a company can be acquired by any of the following modes:
1. By subscribing to the Memorandum of Association of the Company;
2. By agreeing in writing to become a member:
(a) By making an application to the company for allotment of shares; or
(b) By executing an instrument of transfer of shares as transferee; or
(c) By consenting to the transfer of share of a deceased member in his name;
or
(d) By acquiescence or estoppels;
3. By holding equity shares in the company by purchase of shares in the secondary market either in physical form or through depository participant account
And on his name being entered in the register of members of company.



Director’s Identity Number (DIN)
In the current scenario of e-filing, all existing directors and every other person, before becoming a director are required to obtain the Director Identification Number (DIN) DIN is a unique identification number for an existing director or a person intending to become the director of a company. DIN is also mandatory for directors of Indian companies who are not citizens of India. However, DIN is not mandatory for directors of foreign company having branches in India. Only a single DIN is required for an individual, irrespective of number of directorships held by him. An existing Director/person intending to become a Director is required to make an application to Ministry of Corporate Affairs (MCA) for this unique identification number in the application form (form DIN).

Doctrine of Cypres
Where the object of the charitable trust, specified by the settler, is or subsequently becomes impossible or impracticable or unlawful, the trust will not necessarily fail, but the court has power to apply the trust funds to some other charitable object as nearly as possible resembling the intention of the author. This power of the court is known as doctrine of cypress. When a particular mode of charity indicated by the author is not capable of being carried out, yet a general intention of charity, is indicated by the author of the trust, the court would execute it cypress it. In a way as nearly as possible to that which testator specified.

Alternate Director
The Board of directors of a company may, if so authorized by its articles or by a resolution passed by the comp0any in general meeting, appoint an alternate director, in accordance with section 313 of the companies Act 1956, to act for a director during his absence for a period of not less than three months from the state in which meetings of the board are ordinarily held.
‘State’ means a state in which board meeting are ordinarily held and not necessarily the state where the registered office of the company is situate, absence from the state where the registered office is situate will not, unless it is also the state where board meetings are ordinarily held, enable the appointment of an alternate director.
Period of not less than three months indicate a continuous period. Hence there should not be any break in the absence of the original director from the state in which meeting of the board of directors of the company are ordinarily held, if provisions of section 313 are to be brought into play.
An alternate director occupies the position of director and even though he is called an alternate director, he is a director and performs same duties and is subject to the same liabilities as of any director. However, in calculating for the purposes of section 275, the number of companies of which is a director, a company in which he is an alternate director will not be included [Section 278(1)(d)]. Therefore, no new office of the director is created by his appointment. An alternate director may be appointed as a managing or whole-time director.

Minimum subscription
As per SEBI Guidelines for disclosure and Investor Protection, if a company does not receive 90% of the issue amount from the public subscription including development from under writers in case of underwritten issue within 60 days from the date of closure of the issue, the amount of subscription received is required to be refunded to the applicability. If there is delay beyond 8 days after the company becomes liable to pay the amount, the company shll pay interest prescribed under Section 73 of the companies Act. In case of non-under written public issue, if the company does not receive the minimum subscription of 90% of the issued amount on the closure of the issue, or if subscription level falls below 90% due to cheque having been returned unpaid or withdrawal of applications, the company shall forthwith refund the entire subscription amount received. In case of delay beyond 8 days, interest as per section 73 of the companies act is payable by the company.

Red-herring prospects
Red-herring prospectus means a prospectus which does not have complete particulars on the price of the securities offered and the quantum of securities offered. The information memorandum and red-herring prospectus carry same obligations as are applicable in the case of prospectus. Every variation between the information memorandum and the red-herring prospectus shall be highlighted by the issuer company and shall be individually intimated to the persons invited to subscribe to the securities.
Further, as per Section 60B(2) of the Companies Act, a company inviting subscription by an information memorandum shall file a red-herring prospectus at least three days before the opening of an offer.
Sweat equity shares
Sweat equity shares means equity shares issued by a company to its employees of directors at a discount or for consideration other than cash for providing know-how or making available right in the nature of intellectual property rights or value additions, by whatever name called. Section 79A [inserted by the companies (Amendment) Act, 1999] permits issue of such equity shares to employees or directors in recognition of their contribution for providing know-how etc. as aforesaid.
Notwithstanding anything contained in Section 79, a company can issue sweat equity shares, of a class of shares already issued, if the following conditions are satisfied;
(i) The issue has been authorized by a special resolution passed by the company in the general meeting.
(ii) The resolution clearly specifies number of shares, current market price, consideration, if any, and class or classes of directors or employees to whom such equity shares are to be issued.
(iii) As on the date of issue, atleast one year should have elapsed from the date on which the company was entitled to commence business.
(iv) A company whose shares are listed on a recognized stock exchange issuing sweat equity shares should comply with the regulations made in this behalf by SEBI.
(v) A company whose shares are not so listed should issue sweat equity shares in compliance with the rules made in this behalf.

Illegal association
An unincorporated company, association or partnership consisting of large number of persons has been declared illegal. Under the provisions of Section 11 of companies Act, 1956, no company, association or partnership consisting of more than 20 persons (10 in case of banking business) can be formed for the purpose of carrying on any business for gain, unless it is registered as a company under the companies Act, 1956, or is formed in pursuance of some other Indian law, or is a joint Hindu family carrying on business for gain.

Associations like charitable, religious or scientific, which are no formed for the purpose of acquisition of gain, are excluded from the scope of Section 11. The effect of this all is that if an association requires registration under section 11 and is not registered then such an association is illegal and has no existence in the eyes of law. Since the law does not recognize it, an illegal association:
1. Cannot enter into any contract.
2. Cannot sue any member or outsider not even if the company is subsequently registered.
3. Cannot be sued by a member or an outsider.
4. Cannot be wound up by order of court.
However, an illegal association is liable to be taxed [Kumara Swamy Chettair v. ITO (1957) ITR 457]
Under section 11(4) and (5) every member of an illegal association is:
1. Personally liable for all liabilities incurred in carrying on the business of, or by, the illegal association, and
2. Punishable with fine up to Rs. 10,000.