Despite the ongoing options backdating scandal in the US, stock options or restricted stock plans are still the most popular way to incentivise employees. This applies equally to employees in private companies who can cash out when the company is sold or goes public. With the growth in technology companies and renewed concern about attracting talent, stock incentive plans are back in fashion.
So what should a UK company keep in mind before granting options or restricted stock to the employees of its US subsidiaries? First, it should appreciate that the sale of stock to non-high net-worth employees who are not sufficiently knowledgeable about the UK issuer, may, in the absence of an appropriate exemption from registration, be viewed by the Securities and Exchange Commission (SEC) as an unregistered public offering, especially if the number of employees is large or is likely to grow. The first place to look for an exemption is Section 4(2) of the US Securities Act, which exempts transactions by an issuer not involving any public offering. But that begs the question: does the sale of securities to a wide range of employees constitute a public offering?
