The EU Prospectus Directive, which was implemented in July 2005, sets out rules for prospectuses which must be issued when companies make public offers of transferable securities (including shares) within the European Union (and this has been extended to countries in the European Economic Area). The requirements to issue a prospectus can be onerous and expensive for companies.
Fortunately, there are some useful exemptions for employee share plans, including for share options and awards of free shares for no consideration. In addition, an exemption applies to employee share plans operated by companies with shares listed on an EEA stock exchange. A condition of the exemption is that a document should be made available containing information on the nature and number of the shares being offered and reasons for and details of the offer. As much of this information is normally included in an employee booklet or other explanatory materials, and it does not need to be approved by or filed with the regulator, this condition can be easily met.
Companies whose shares are unlisted (including AIM) or are listed only outside the EEA (eg on the New York Stock Exchange) did not qualify for the employee share plans exemption. This created a particular problem for non-EEA companies which operate employee share purchase plans, including the offer of partnership shares under a SIP.
Under an amending directive, the employee share plans exemption is being extended to:
- any company which has its head office or registered office in the EEA, even if its securities are not traded; and
- other companies whose securities are traded on a market outside the EEA, provided that the European Commission has decided that the legal and supervisory framework in the relevant market has equivalent requirements to those in the EEA.
The amending directive also improves two further exemptions from the prospectus requirements:
- an exemption for offers to fewer than 100 persons in an EEA member state has increased to 150 persons; and
- an exemption for offers where the total consideration across the EEA is less than 2.5 million Euros has increased to 5 million Euros.
The UK incorporated all these amendments into its domestic law, through amendments to the Financial Services and Markets Act 2000 and the FSA Handbook, by the deadline of 1st July 2012. However, this may not solve the problem for some companies because:
- the extension of the employee share plans exemption to companies with shares traded outside the EEA has not come into effect as the European Commission has not yet certified that any other markets have equivalent requirements to those in the EEA; and
- many of the other EEA countries have not yet incorporated the amendments into their domestic law.
Michael Landon, the author of this article, is Executive Compensation Director at MM&K, and a member of our Share Schemes Expert Group.
