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

Offering Stock Options to Employees in Missouri

In Missouri, offering stock options to employees may be subject to securities laws. The requirements for offering stock options depend on whether the options are considered securities and whether an exemption from registration is available.

Determining if Stock Options are Securities

Under Missouri law, a security is defined as “any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any interest or instrument commonly known as a “security” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase any of the foregoing” [1.1].

Stock options may be considered securities if they meet the definition of an “investment contract.” The U.S. Supreme Court has defined an investment contract as “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party” [1.1].

Exemptions from Registration

If stock options are considered securities, they may be subject to registration requirements under Missouri law. However, certain exemptions from registration may be available.

One exemption that may apply is the “isolated nonissuer transaction” exemption [1.6]. This exemption applies to transactions that are not made by or on behalf of the issuer of the security and are not part of a distribution of securities. This exemption may apply to the offer and sale of stock options to employees if the options are not part of a larger offering of securities.

Another exemption that may apply is the exemption for transactions by an issuer not involving any public offering [1.1]. This exemption applies to transactions that are not made through a public offering and are not made to more than 10 purchasers in Missouri in any 12-month period. This exemption may apply to the offer and sale of stock options to employees if the options are not offered to the public and are offered to fewer than 10 employees in Missouri in any 12-month period.

Additional Requirements

It is important to note that corporations and banks may own stock or securities of a company, and these securities may be exempt from certain provisions of Missouri securities laws [2.1]. However, fraudulent practices and unlawful practices are not allowed in connection with any takeover bid or solicitation of offerees [1.3]. Offerees who have been injured by any violation of Missouri securities laws may bring an action to enjoin such unlawful act or practice and to recover actual damages together with reasonable attorney fees in the event the offeree is successful [1.2].

Conclusion

Offering stock options to employees in Missouri may be subject to securities laws. The requirements for offering stock options depend on whether the options are considered securities and whether an exemption from registration is available. If you are considering offering stock options to employees, it is recommended that you consult with a securities attorney to ensure compliance with Missouri securities laws.

Source(s):
Jurisdiction

Missouri