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

Offering Stock Options to Employees in West Virginia

To offer stock options to employees in West Virginia, you must comply with the state’s securities laws. The West Virginia Crowdfunding Portal Requirements [1.2] provide an exemption for certain offerings made exclusively through an internet-based crowdfunding portal that is incorporated or organized under the laws of West Virginia and authorized to do business in West Virginia and registered with the commissioner. However, this exemption is limited to offerings made through a crowdfunding portal and subject to certain requirements, including:

  • The offering must be made exclusively through an internet-based crowdfunding portal that is incorporated or organized under the laws of West Virginia and authorized to do business in West Virginia and registered with the commissioner.
  • The crowdfunding portal must contain a conspicuous disclaimer that reflects that access to securities offerings on the website is limited to West Virginia residents and offers and sales of the securities on the website are limited to persons that are West Virginia residents.
  • There must be an affirmative representation by a visitor to the crowdfunding portal that the visitor is a resident of West Virginia before the visitor can view securities-related offering materials on the crowdfunding portal website.
  • The crowdfunding portal must take reasonable steps to verify that all prospective purchasers are West Virginia residents.
  • The crowdfunding portal must provide certain information to the commissioner at least ten days prior to the offering.

If you do not meet the requirements for the crowdfunding portal exemption, you may still be able to offer stock options to employees without violating securities laws in West Virginia by complying with other exemptions listed in the West Virginia Securities Act [1.5]. For example, you may be able to rely on the exemption for offers or sales to employees of the issuer or its affiliates [1.5].

According to WVCO 31D-6-624 [2.1], a corporation may issue rights, options, or warrants for the purchase of shares of the corporation. The board of directors shall determine the terms upon which the rights, options, or warrants are issued, their form and content, and the consideration for which the shares are to be issued.

To qualify for exemption under the West Virginia Securities Act [1.3], the issuer must be a for-profit entity organized under the laws of West Virginia with its principal place of business in West Virginia. The purchaser must be a resident of West Virginia or be an entity organized under the laws of West Virginia with its principal place of business in West Virginia. The exemption is not available to certain entities, including investment companies, development stage companies, and persons who are subject to certain disqualifying events [1.3].

The transaction must meet the requirements of the federal exemption for intrastate offerings in section 3(a)(11) of the Securities Act of 1933, 15 U.S.C. section 77c(a)(11) and SEC rule 147, 17 CFR 230.147 [1.4]. The sum of all cash and other consideration received from the issue of securities under this exemption may not exceed $1 million per annum unless the issuer prepares and produces audited financial statements on a quarterly basis to the commissioner. If audited financial statements are prepared and produced to the commissioner, the sum of all cash and other consideration received from the issue of securities shall not exceed $2 million per annum [1.4].

Restrictions on the transfer or registration of transfer of shares of the corporation may be imposed by the articles of incorporation, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation [2.2].

In summary, to offer stock options to employees without violating securities laws in West Virginia, you must comply with the state’s securities laws, including the requirements for the crowdfunding portal exemption or other applicable exemptions listed in the West Virginia Securities Act. You should consult with a securities attorney to ensure compliance with all applicable securities laws.

Source(s):
Jurisdiction

West Virginia