Become a Govt. Certified GST Practitioner in just 60 hrs. Register Now!

ESOP and sweat equity

Kishan Sahani (20 Points)

20 July 2017

what is difference between esop ans sweat equity

Reply
Follow
Share

1 Replies

upasana gupta (Finance Professional) (3931 Points)
Replied 20 July 2017

"Sweat Equity" is not a defined term. It is simply a colloquial expression implying that one's ownership interest in a company derived not from paying for it (as it would with an investor), or even founding it (as it would with a founder), but rather that the company gave you an increasing ownership interest in exchange for ongoing work that you put in. On the other hand, an "ESOP" is a legally defined term. It stands for an Employee Stock Option (or Ownership) Plan. That is the mechanism by which employees of a company are compensated with increasing equity interests over time. An ESOP typically sets aside a certain percentage of the ownership of the company (say, 10-15% of the stock), and when each employee is hired, he or she is granted Options to purchase a particular number of shares. An "option" is exactly that: the right, but not the obligation, to buy shares at the current fair market value of the company.