Do Securities Laws Apply to Employee Compensation Plans?

Posted by Eli Solomon


Offering stock option grants and rewards to employees can be an effective way to attract and retain talent. Any company offering equity must however be in compliance with blue sky laws, even if the purchaser of the stock is an employee and not an “investor”. Blue sky laws vary state by state, and therefore the requirements for employee stock offerings also vary.


In this post, we will discuss how private companies can remain in compliance regarding their employee compensation plans, and also look at a recent blue sky legislation passed in Oregon.


Employee Compensation Plans & Rule 701
Many states make it easy for private companies to offer their employees equity, as long as the offerings are in compliance with Rule 701 of the Securities Act of 1933.


Rule 701 is an exemption that allows private companies (not public) to avoid registering stock option grants and rewards for performance. There are no filing or fee requirements and the offering must be part of a written compensatory benefit plan. The rule does however place strict mathematical limits on employee offerings before disclosure must take place.


Oregon Updates Requirements for Employee Stock Options
Until recently, Oregon possessed some of the most onerous requirements for private companies offering employee stock option grants and rewards. Even if an offering was exempt under Rule 701, the state still required companies to submit an application for approval. Under the previous requirements, an officer or director of the company would have to be licensed and registered as a “sales person” and provide personal sensitive information such as SSN, DOB, Address & Employment History and even Height and Weight. A detailed description of the offering would also have to be submitted, and the filing would be renewed annually.


Fortunately, a new law was passed in March of this year which completely eliminated the application process, leaving only the annual renewal process and an associated filing fee.


With the variations in Blue Sky Laws state to state, successfully raising capital for your business can be a challenge. At Blue Sky Filings, we take care of the entire blue sky filing process for you. If you need more information about Blue Sky Laws or to get assistance with your blue sky filings, please contact us at Blue Sky Filings by calling (844) 723-4537 or by filling out our online form.

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