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

To offer stock options to employees in Pennsylvania, a business corporation must comply with its articles of incorporation, obtain authorization from the board of directors, comply with fiduciary duty, comply with securities laws, provide adequate disclosure to employees, and comply with the Internal Revenue Code. Additionally, restrictions on the transfer of securities of a business corporation may be imposed by the bylaws or by an agreement among any number of securityholders or among them and the corporation [1.2]. Any restriction on the transfer of securities of a business corporation or on the amount of securities of a corporation that may be owned by a person or group of persons for any of the following purposes shall be conclusively presumed to be for a reasonable purpose: (1) relating to the Federal, State, local or foreign taxation of the corporation or its shareholders, including without limitation: (i) maintaining the status of the corporation as an electing small business corporation under Subchapter S of the Internal Revenue Code of 1986; (ii) maintaining or preserving any tax attribute, including without limitation net operating losses; or (iii) qualifying or maintaining the qualification of the corporation as a real estate investment trust pursuant to the Internal Revenue Code of 1986; (2) complying with any statutory or regulatory requirement; or (3) maintaining any statutory or regulatory status [1.2].

In addition, a financial institution or pension management organization providing services for any plan established or maintained by a school district under IRC § 403(b) or 457 shall enter into an agreement with the school district or the school district’s independent compliance administrator that shall require the financial institution or pension management organization to provide in an electronic format all data necessary for the administration of the 403(b) plan or 457 plan as determined by the school district or the school district’s compliance administrator. The financial institution or pension management organization shall also provide all data required by the school district or a school district’s compliance administrator to facilitate disclosure of all fees, charges, expenses, commissions, compensation and payments to third parties related to investments offered under the 403(b) plan or 457 plan [2.2].

Therefore, to offer stock options to employees in Pennsylvania, a business corporation must comply with the requirements mentioned above, and any restrictions on the transfer of securities of a business corporation must be for a reasonable purpose. Additionally, a financial institution or pension management organization providing services for any plan established or maintained by a school district under IRC § 403(b) or 457 must provide all necessary data for the administration of the plan and facilitate disclosure of all fees, charges, expenses, commissions, compensation, and payments to third parties related to investments offered under the plan.

Source(s):
Jurisdiction

Pennsylvania