The board of the ailing electronics maker met on Saturday to discuss the two takeover proposals, according to the sources, who requested anonymity because they were not authorized to speak to the media.
The company's 13-member board holds a regularly scheduled meeting on Wednesday, and aims to vote on the competing offers at an extraordinary meeting the next day, the sources said.
Sharp said earlier this month that it was devoting more resources to studying a deal with Foxconn, an Apple Inc supplier known formally as Hon Hai Precision Industry Co.
The Taiwanese firm, the world's largest electronics assembler, has offered to invest JPY 659 billion ($5.9 billion, roughly Rs. 40550 crores) in Sharp, far more than the JPY 300 billion (roughly Rs. 20,61,870 crores) investment proposed by state-backed Innovation Network Corp of Japan (INCJ).
Sharp declined to comment while INCJ officials could not immediately be reached. Foxconn said it had no comment, citing previous remarks by its chairman, Terry Gou, that it was in a silent period during its negotiations with Sharp.
Gou was in Japan late in the week following a visit to Taiwan by Sharp executives. Their report formed part of Saturday's board discussions, one source said.
Foxconn said this month it had agreed with Sharp on most points of a deal, but the sources said the situation remained fluid with both bids still on the table.
The Taiwanese firm has offered to pay 100 billion yen as a cancellation fee if it does not go through with the deal, one source said.
Another source said Sharp's main lenders oppose the INCJ proposal, which calls for them to cancel the preferred shares they own.
In recent days, INCJ has made a final push, objecting to two Sharp board members who it says have a conflict of interest as they represent a fund that holds preferred shares in the electronics company, sources said.
A deal with Foxconn would give Sharp much-needed resources to develop advanced organic light-emitting diode panels, which Apple is said to be adopting in its iPhone within a couple of years.
INCJ, on the other hand, plans to combine Sharp's loss-making display business with rival Japan Display Inc.
© Thomson Reuters 2015
Get your daily dose of tech news, reviews, and insights, in under 80 characters on Gadgets 360 Turbo. Connect with fellow tech lovers on our Forum. Follow us on X, Facebook, WhatsApp, Threads and Google News for instant updates. Catch all the action on our YouTube channel.