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

Offering Stock Options to Employees in Iowa

To offer stock options to employees in Iowa, you must comply with the securities laws of the state. The Iowa Code provides exemptions for certain securities, including options and rights, from the registration requirements of sections 502.301 through 502.306 and 502.504 [2.1]. However, there are restrictions on the creation, issuance, and transfer of any rights or options entitling the holder to purchase shares of a professional corporation, including treasury shares [1.1].

Requirements for Offering Stock Options to Employees

To offer stock options to employees in Iowa, you must comply with the following requirements:

  1. The securities must be exempt from registration under Iowa Code section 502.201 [2.1].
  2. The options must not be transferable, whether voluntarily, involuntarily, by operation of law, or in any other manner [1.1].
  3. Upon the death of the holder, or whenever the holder ceases to be licensed to practice in Iowa, the options shall expire [1.1].

Exceptions and Prohibitions

There are additional exceptions and prohibitions that you should be aware of when offering stock options to employees in Iowa:

  • Exceptions as to domestic stock companies: The provisions of sections 523.7, 523.8, and 523.9 shall not apply to equity securities of a domestic stock insurance company if either of the following apply: 1. The securities are registered, or are required to be registered, pursuant to section 12 of the Securities Exchange Act of 1934, 48 Stat. 881, 15 U.S.C. §77b et seq., as amended. 2. The domestic stock insurance company does not have any class of its equity securities held of record by one hundred or more persons on the last business day of the year next preceding the year in which equity securities of the company would be subject to the provisions of sections 523.7, 523.8, and 523.9 except for the provisions of this subsection 2 [3.1].
  • Fraudulent, deceptive, or manipulative acts and practices prohibited: An offeror, target company, affiliate or associate of an offeror or target company, or broker-dealer acting on behalf of an offeror or target company shall not engage in a fraudulent, deceptive, or manipulative act or practice in connection with a takeover offer [2.3].
  • Prohibited conduct in providing investment advice: It is unlawful for a person that advises others for compensation, either directly or indirectly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities or that, for compensation and as part of a regular business, issues or promulgates analyses or reports relating to securities to do any of the following: a. Employ a device, scheme, or artifice to defraud another person. b. Engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person [2.4].

As long as the options are exempt from registration and meet the requirements outlined above, you can offer them to your employees without violating securities laws in Iowa.

Source(s):
Jurisdiction

Iowa