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

Here are the requirements for offering stock options to employees in Texas without violating securities laws:

Requirements for Offering Stock Options to Employees in Texas

In Texas, offering stock options to employees is subject to securities laws. To offer stock options to employees without violating securities laws, the following requirements must be met:

  1. The option must be guaranteed by a broker-dealer registered under the Securities Exchange Act of 1934 [1.1].
  2. The security that may be purchased or sold on exercise of the option must be exempted under Section 4005.054 or quoted on the NASDAQ stock market and meet the requirements of Sections 4005.019(b)(1), (6), (7), and (8) [1.1][1.4].
  3. The sale is not directly or indirectly for the purposes of providing or furthering a scheme to violate or evade securities laws [1.1].

Additionally, Texas Business Organizations Code Section 21.168 allows corporations to create and issue stock rights or options that entitle the holders to purchase or receive from the corporation shares of any class or series or other securities, subject to the corporation’s certificate of formation. The terms and conditions of rights or options may include restrictions or conditions that prohibit or limit the exercise, transfer, or receipt of the rights or options by certain persons or classes of persons [2.1][2.2].

Furthermore, Texas Government Code Section 4005.013 provides an exemption for the sale or distribution of a security without any public solicitation or advertisement if the sale or distribution is made under a bona fide thrift, savings, stock purchase, retirement, pension, profit-sharing, option, bonus, appreciation right, incentive, or similar written compensation plan or written compensation contract established by the issuer or the issuer’s subsidiary for the benefit of employees, directors, general partners, managers, or officers of the issuer or subsidiary [1.3].

Conclusion

To offer stock options to employees in Texas without violating securities laws, the option must be guaranteed by a broker-dealer registered under the Securities Exchange Act of 1934, the security that may be purchased or sold on exercise of the option must be exempted under Section 4005.054 or quoted on the NASDAQ stock market and meet the requirements of Sections 4005.019(b)(1), (6), (7), and (8), and the sale is not directly or indirectly for the purposes of providing or furthering a scheme to violate or evade securities laws. Additionally, corporations may create and issue stock rights or options subject to the corporation’s certificate of formation and the terms and conditions of rights or options may include restrictions or conditions that prohibit or limit the exercise, transfer, or receipt of the rights or options by certain persons or classes of persons. Finally, an exemption is provided for the sale or distribution of a security without any public solicitation or advertisement if the sale or distribution is made under a bona fide compensation plan or contract established by the issuer or the issuer’s subsidiary for the benefit of employees, directors, general partners, managers, or officers of the issuer or subsidiary.

Source(s):
Jurisdiction

Texas