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

Requirements for Offering Stock Options to Employees in Maryland

In Maryland, offering stock options to employees may be subject to federal and state securities laws. The following are the requirements for offering stock options to employees in Maryland:

  1. Compliance with Federal Securities Laws: Companies offering stock options to employees must comply with federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934 [1.1].
  2. Registration Requirements: In Maryland, the offer and sale of securities must be registered with the Maryland Securities Division, unless an exemption applies [1.1].
  3. Exemptions: The following exemptions may apply to the offer and sale of securities in Maryland:
  4. Rule 147: Intrastate offerings that meet certain requirements, including that the issuer and all purchasers are residents of the same state [1.1].
  5. Rule 504: Offerings that do not exceed $5 million in a 12-month period [1.1].
  6. Rule 506: Offerings that meet certain requirements, including that the issuer takes reasonable steps to verify that purchasers are accredited investors [1.1].
  7. Accredited Investors: If the company offers stock options to employees who are not accredited investors, the company must provide them with certain disclosures, including financial statements and information about the risks of investing [1.1].
  8. Compliance with State Securities Laws: Companies offering stock options to employees must comply with state securities laws, including the Maryland Securities Act [1.1].
  9. Restrictions on Transferability to Aliens: Any Maryland corporation which conducts business under a license or grant of authority issued pursuant to a statute or regulation of the United States government, this State, or any agency of either, which statute or regulation provides that the license or grant of authority may not be granted to or held by, or the business may not be conducted by, a corporation of which more than a specified percentage of the capital stock or voting interests is owned of record or controlled by aliens, or which license or grant of authority permits an agency to restrict, limit or revoke the license or grant of authority or the right to conduct the business in such circumstances, or any Maryland corporation controlling directly or indirectly any corporation, joint-stock company or association which conducts its business or any portion of its business under the license or grant of authority, may, by its bylaws, restrict or limit the transferability to, ownership by, or voting rights of shares of its stock, whether issued or to be issued in the hands of aliens to the extent appropriate to comply with the applicable statute or regulation [2.1].

Conclusion

In Maryland, offering stock options to employees may be subject to federal and state securities laws. Companies must comply with registration requirements or exemptions, provide disclosures to non-accredited investors, comply with state securities laws, and restrict transferability to aliens if necessary to comply with applicable statutes or regulations.

Source(s):
Jurisdiction

Maryland