Sweat Equity

Ownership earned through work rather than cash investment, the shares founders and early team get for building the company with their time and effort instead of money.

Why it matters

Sweat equity is how cash-poor startups reward the people who build them before there is money to pay market salaries. Valuing it fairly, against cash and risk, is central to structuring founder and early-employee equity.

For example

A founder who takes no salary for two years builds real ownership through sweat equity, the shares earned by effort rather than cash invested.

Go deeper

Sweat Equity in India: Eligibility, Restrictions, Tax Treatment Treelife · article This is the exact CA-firm explainer for the trap in the answer: it walks the two-stage tax on sweat equity, first as a perquisite under Section 17(2)(vi) at allotment (FMV minus what you paid, taxed at your slab in the year of grant), then as capital gains on sale (sale price minus allotment FMV). It cites the actual sections and rules, so you can hand it to your CA and check the maths on a discounted grant before you issue it. Open treelife.in →

Related terms

Also in Starting Up

See how founders actually handle this on Co-founders, team and legal, part of the Starting Up hub.

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