- April 18, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Section: Money Market
The Company Law Committee, formed by the Ministry of Corporate Affairs, has recommended various measures, including the issuance of fractional shares, restricted stock units (RSUs) and stock appreciation rights (SARs), besides allowing companies to hold shareholders meetings in hybrid mode to boost ease of doing business and improve liquidity in the market.
A fractional share
It refers to a portion of a share less than one. It will enable retail investors to own a part of the highly-priced share at a fraction of the cost.
For instance, instead of spending close to ₹67,459 to buy one share of MRF — the highest priced share in India — an investor can invest just ₹100 or ₹1,000 to own a part of the company share.
Restricted Stock Units
The term restricted stock unit (RSU) refers to a form of compensation issued by an employer to an employee in the form of company shares. Restricted stock units are issued to employees through a vesting plan and distribution schedule after they achieve required performance milestones or upon remaining with their employer for a particular length of time.
Unlike stock options or warrants, RSUs will always have some value based on the underlying shares.
Stock Appreciation Rights
Stock Appreciation Rights is a scheme under which the participants, being directors, officers or employees of the company, are entitled to receive cash on account of appreciation in stock prices of the company, subject to fulfillment of certain vesting conditions.
It is a deferred compensation tied to the company’s stock performance. They give employees the right to the monetary equivalent to the appreciation in the value of a specified number of shares over a fixed period.
The cash to be paid is calculated on the basis of the Intrinsic value of the SARs, being the difference between the grant price(fair market value on the date the appreciation rights were granted) and the fair market price of the shares as on the exercise date.