Corporate And Financial Services Regulation Review: Relief For Unlisted Companies Seeking To Institute An Employee Share Plan

Offers of securities, including offers of shares under an employee share plan, require the issuing of a “disclosure document” in the form of a prospectus, short form prospectus, profile statement or offer information statement. While exceptions apply, the conditions and complexity have made it tough for unlisted, and particularly small, companies to have an employee share or option plan.  This is about to get easier, under changes proposed by the federal government.

Currently, exceptions to the provision of onerous and expensive disclosure documents are allowed under Corporations Act 2001 Section 708, including for offers that involve no more than 20 employees in any 12 month period and raise no more than $2 million.

Further regulation is also imposed under the Corporations Act 2001 in respect of the licensing provisions, which may require the issuer to hold an Australian Financial Services Licence; through the provisions relating to advertising of securities or financial products; and via the hawking provisions.

Some relief from these requirements is available to listed companies from the Australian Securities & Investment Commission, in particular via Class Order 03/184, subject to certain conditions.  Because the exemptions and reliefs are strictly defined, most unlisted companies would need to issue an expensive prospectus or alternative disclosure document as part of an offer of shares under an employee plan. 

The Government proposes to extend the relief in ASIC Class Order 03/184 to unlisted companies, with the exception of disclosure relief.  This will be effected by exempting the operation of employee share plans from the licensing, advertising and hawking provisions generally.  These exemptions would be subject to the same requirements stated in the Class Order, in addition to the requirement that the advertising and hawking exemptions only be available for unlisted companies when they have made an offer under an offer information statement (OIS) or other disclosure document. 

The Government has indicated that it considers that an OIS as defined in Chapter 6D of the Corporations Act 2001 provides an appropriate level of disclosure of required information for employees of unlisted companies to make a decision regarding participation in an employee share plan.  Chapter 6D s709(4) currently provides that an OIS may be used in lieu of a prospectus where the money to be raised, when added to all amounts previously raised by the company (or related entities) is $5 million or less.  The Government proposes to increase that amount to $10 million and to exclude amounts raised under employee share schemes from that calculation.  The requirement in the Class Order that amounts raised by listed companies should not be more than 5% of the capital of the company will not be imposed on unlisted companies.

Although unlisted companies seeking to introduce employee share schemes will need to remain aware of the various regulatory considerations that need to be addressed in the course of that process, these proposals, once implemented, should diminish the challenges and at the very least reduce the cost of establishing an employee plan.

© Guerdon Associates 2023
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