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

To offer stock options to employees in Michigan, you must comply with the state’s securities laws. The requirements for offering securities in Michigan are outlined in MICL 451.2202a [2.1].

Requirements for Offering Securities in Michigan

According to MICL 451.2202a, an offer or sale of a security by an issuer is exempt from the requirements of sections 301 to 306 and 504 if the offer or sale meets all of the following requirements:

  1. The issuer of the security is an entity that is incorporated or organized under the laws of Michigan, is a resident of Michigan under SEC rule 147, 17 CFR 230.147, or SEC rule 147A, 17 CFR 230.147A, and is authorized to do business in Michigan.
  2. The transaction meets the requirements for the federal exemption for intrastate offerings under 15 USC 77c(a)(11) and SEC rule 147, 17 CFR 230.147, including, but not limited to, the requirements for determining whether an offeree or purchaser is a resident of Michigan, or the federal exemption for intrastate offerings under 15 USC 77e and SEC rule 147A, 17 CFR 230.147A.
  3. The sum of all cash and other consideration to be received for all sales of the security in reliance on this exemption does not exceed $2 million, less the aggregate amount received for all sales of securities by the issuer within the 12 months before the first offer or sale made in reliance on this exemption.
  4. The issuer has not accepted more than $10,000 from any single purchaser unless the purchaser is an accredited investor as defined by rule 501 of SEC regulation D, 17 CFR 230.501.
  5. At least 10 days before an offer of securities is made in reliance on this exemption, the issuer files a notice with the administrator that contains certain information, including a copy of the disclosure statement to be provided to prospective investors in connection with the offering.
  6. The issuer informs each prospective purchaser that the securities are not registered under federal or state securities laws and that the securities are subject to limitations on transfer or resale.

Offering Stock Options to Employees

If an issuer wants to offer stock options to employees, the selection of any director or officer of the insurer to whom stock may be allocated or to whom incentive, qualified, restricted, or employee stock purchase plan stock options may be granted pursuant to the plan must be subject to certain requirements outlined in MICL 500.5283b [1.1].

According to MICL 500.5283b, if the selection of any director or officer of the insurer to whom stock may be allocated or to whom incentive, qualified, restricted, or employee stock purchase plan stock options may be granted pursuant to the plan is subject to the discretion of any person, then such discretion shall be exercised only as prescribed in this section.

The participation of directors must be approved by the board of directors of the insurer, a majority of which board and a majority of the directors acting in the matter are disinterested persons. Alternatively, the participation of directors can be approved by a committee of 3 or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons.

The participation of officers who are not directors can be approved by the board of directors of the insurer or a committee of 3 or more directors. Alternatively, the participation of officers who are not directors can be approved by a committee of 3 or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons.

For the purpose of this section, a director or committee member shall be deemed to be a disinterested person only if he or she is not eligible at the time the discretion is exercised and has not been eligible at any time within 1 year prior thereto for selection as a person to whom stock may be allocated or to whom incentive, qualified, restricted, or employee stock purchase plan stock options may be granted pursuant to the plan or any other plan of the insurer or any of its affiliates entitling the participants therein to acquire stock or incentive, qualified, restricted, or employee stock purchase plan stock options of the insurer or any of its affiliates.

This section shall not apply with respect to any option granted, or other equity security acquired, prior to the date that sections 5282, 5283, and 5284 first become applicable with respect to any class of equity securities of any insurer.

Conclusion

To offer stock options to employees in Michigan, an issuer must comply with the state’s securities laws outlined in MICL 451.2202a [2.1]. Additionally, the selection of any director or officer of the insurer to whom stock may be allocated or to whom incentive, qualified, restricted, or employee stock purchase plan stock options may be granted pursuant to the plan must be subject to certain requirements outlined in MICL 500.5283b [1.1].

Source(s):
Jurisdiction

Michigan