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The issuance of sweat equity shares has recently created controversies. The limitations backing the conservatism of sweat equity shares issuance can be ascribed to confabulating recipient recognition process, uneasy tax treatment and procedural inconsistencies. This paper aims to study the theoretical and legal underpinnings, rightful recipients and the procedure for issuing sweat equity shares.

The authors choose the jurisdictions of India, the USA and Japan to study the problems plaguing issuance of sweat equity shares. The USA's prototypical reference and burgeoning technical soundness coupled with the sound venture capitalism of India and Japan has inspired the choice. The regulatory regime subsisting in the above jurisdictions governing sweat equity is studied comprehensively and comparatively. The structuring of sweat equity transactions and the tax treatment of sweat equity shares in the USA, India and Japan are discussed.

It is found that due to the absence of set standards and precedents the method for identifying the right recipients has trembled abysmally.

The paper focuses on the issues surrounding the practice of employees contributing to an organization being remunerated through shares.