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

To offer stock options to employees in Colorado, you must comply with securities laws. The requirements for issuing shares are outlined in CORS 7-106-202, and the restrictions on the transfer of shares are outlined in CORS 7-106-208. Additionally, CORS 11-42-112 outlines the requirements for the sale of permanent stock.

Requirements for Issuing Shares

According to CORS 7-106-202, the board of directors may authorize the issuance of shares for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, and other securities of the corporation. Before the corporation issues shares, the board of directors must determine that the consideration received or to be received for the shares to be issued is adequate. In the absence of fraud in the transaction, that determination by the board of directors is conclusive insofar as the adequacy of such consideration relates to whether the shares are validly issued, fully paid, and nonassessable.

Restrictions on Transfer of Shares

CORS 7-106-208 allows for restrictions on the transfer or registration of transfer of shares of the corporation. The articles of incorporation, the bylaws, an agreement among shareholders, or an agreement among shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect shares issued before the restriction became effective unless the holder of such shares acquired such shares with knowledge of the restriction, is a party to the agreement containing the restriction, or voted in favor of the restriction or otherwise consented to the restriction.

Requirements for Sale of Permanent Stock

CORS 11-42-112 requires that no association shall sell, offer for sale, negotiate for the sale of or take subscriptions for, or issue any of its permanent stock until it has first applied for and secured from the commissioner a permit authorizing it so to do. Such application shall be in writing, verified, and filed with the commissioner. In such application, the association shall set forth the names and addresses of its officers, the location of its office, an itemized account of its financial condition, the amount and character of its stock and shares, a copy of any prospectus or advertisement or other description of its stock to be distributed or published, a copy of all minutes of any proceedings of its directors, shareholders, or stockholders relating to or affecting the issue of such stock, and such additional information concerning the association, its condition, and its affairs as the commissioner may require.

Based on the above, it is important to consult with a legal professional to ensure compliance with securities laws when offering stock options to employees in Colorado.

^[2.1] outlines the requirements for permanent stock. Permanent stock shall be of one class only, shall have the full voting rights, and shall have a par value of not less than one dollar per share. Any paid-in surplus may be made available for payment of organization and initial operating expenses, or may be credited to surplus, or to the contingent reserve, or to the federal insurance reserve, or may be transferred to permanent stock as a stock dividend and prorated to the holders of permanent stock. An association shall not issue permanent stock for a consideration other than cash or for a price less than the par value thereof, but, with the approval of the commissioner, stock may be issued for a consideration other than cash in connection with mergers, consolidations, or transfers, and, when fully paid, the stock shall be kept unimpaired to the extent of its par value.

In summary, to offer stock options to employees in Colorado, you must comply with securities laws and the requirements for issuing shares, restrictions on transfer of shares, and the sale of permanent stock. It is important to consult with a legal professional to ensure compliance with these laws.

Source(s):

• [2.1] Permanent stock.

Jurisdiction

Colorado

• General