Can I offer stock options to employees without violating securities laws in Arizona? What are the requirements?

Offering Stock Options to Employees in Arizona

To offer stock options to employees without violating securities laws in Arizona, you must ensure that the options are exempt from registration under Arizona securities laws.

According to AZRS 44-1843, securities issued pursuant to an employee stock option plan are exempt from registration requirements. Therefore, as long as the stock options are issued pursuant to a valid employee stock option plan, they are exempt from registration requirements under Arizona securities laws.

However, it is important to note that the exemption only applies to the securities themselves and not to any offers or sales of the securities. Therefore, any offers or sales of the stock options must still comply with applicable securities laws.

Requirements for Employee Stock Option Plans

Employee stock option plans must comply with federal securities laws, including Rule 701 of the Securities Act of 1933. Rule 701 provides an exemption from registration requirements for offers and sales of securities pursuant to certain compensatory benefit plans, including employee stock option plans.

To qualify for the exemption under Rule 701, the following requirements must be met:

• The plan must be in writing and must be communicated to employees.
• The plan must be administered in good faith.
• The options must be granted for services rendered to the company.
• The options must be granted only to employees, directors, general partners, or consultants of the company or its affiliates.
• The aggregate sales price or amount of securities sold during any consecutive 12-month period must not exceed the greatest of the following: $1 million, 15% of the total assets of the company, or 15% of the outstanding securities of the class being offered.
• The options must be non-transferable, except in certain limited circumstances.
• The options must be exercisable only by the optionee or the optionee’s estate or heirs.
• The options must be subject to a one-year holding period before they can be exercised, unless the optionee dies, becomes disabled, or the company is acquired.

It is important to note that these requirements are only a summary and that there may be additional requirements under federal or state securities laws. Therefore, it is recommended that you consult with a legal professional to ensure compliance with all applicable securities laws.

Relevant Arizona Securities Laws

• AZRS 44-1843: Exemption from registration for securities issued pursuant to an employee stock option plan.
• AZRS 44-1846: Powers of commission to exempt certain securities or transactions.
• AZRS 10-2220: Issuance of shares by professional corporations.
• AZRS 44-1843.02: Special filing requirements for certain exempt or federal covered securities.
• AZRS 44-1815: Cooperation with other securities agencies.

It is important to review these laws and consult with a legal professional to ensure compliance with all applicable securities laws.

Jurisdiction

Arizona

• General