Employee share schemes for private companies: a little bit easier

The government has announced on 13 November 2018 that it is proposing to lessen the regulatory burden for private, unlisted companies looking to implement an employee share scheme. The changes could come in handy as larger companies provide more venture capital to fund potential disrupters.

There have been improvements to the taxation rules on employee share schemes (ESS) for private companies (particularly certain start-up companies) in recent years (see HERE) . However, there has continued to be corporations’ law and regulatory barriers that, put simply, make it very hard and costly for private companies to use ESSs. These barriers have included:

  • The Corporations Act 2001 puts onerous disclosure, licensing, advertising and on-sale obligations on the employer
  • ASIC’s Class Order 14/1001 limits the value of equity the employer can grant to $5,000 per employee per year
  • ASIC also prohibits contribution plans where the employee either contributes an amount or sacrifices salary
  • ASIC also requires the employer to provide financial information to the employees.

These regulations and obligations apply to all unlisted companies, whether they are large sophisticated private companies or small businesses, start-ups and other mid size firms.

The proposed changes are welcome and come after many years of Guerdon Associates and other professionals lobbying government for change (for example, see HERE) .

It is not yet clear whether the changes will be limited to small businesses and start-ups or extend to larger unlisted companies. As there is no announcement of timing, we await the exposure draft.

The government is proposing to:

  • Create a specific exemption in the Corporations Act for the following obligations:
    • Disclosure
    • Licensing
    • Advertising and hawking
    • On-sale obligations
  • Increasing the value limit of equity that can be offered from $5,000 to $10,000 per employee per 12 month period
  • Allow contribution plans
  • Allow small businesses to grant equity without publicly disclosing commercially sensitive financial information unless they are otherwise obligated to do so.

The government’s media release can be found HERE

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