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Employee Option Program (ESOP) Stocks
ESOP (Employee Stock Ownership Plan) stock is a type of stock issued under the employee option program of a public company. This is a type of preferred stock in which the company only sells preferential shares to employees at a cheaper price than the market price and is often accompanied by a transfer restriction (depending on the company’s charter and the resolution of the Board of Shareholders).
Employees who receive ESOP shares are long-term employees who have contributed to the development of the company. Usually this standard is in the Charter or statutes issued by the company.
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ESOP issuanceconditions
The issuance of ESOPs needs to meet the conditions under Article 64 of Decree 155/2020/ND-CP:
– Approved by the General Meeting of Shareholders;
– The total number of shares issued under the program in each 12 months must not exceed 5% of the company’s outstanding shares;
– There are standards and a list of employees eligible to participate in the program, principles for determining the number of shares to be distributed to each object and the implementation time approved by the General Meeting of Shareholders or authorized by the Board of Directors for approval;
– The company needs sufficient capital according to the audited financial statements in the latest time from the following sources:
- Share capital surplus;
- Development Investment Fund;
- Undistributed after-tax profits;
- Other funds (if any) shall be used to supplement charter capital in accordance with law;
– In case the company issues bonus shares to employees, the total value of the above capital sources must be not lower than the total value of additional share capital according to the plan approved by the General Meeting of Shareholders;
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Order and procedures
– Order and procedures for issuing shares to pay dividends, issuing shares to increase share capital from equity sources, issuing shares under the option program for employees
– The issuer must send documents reporting on share issuance specified in Articles 61, 63 and 65 of this Decree to the State Securities Commission.
– Within 07 working days from the date of receipt of complete and valid issuance report documents, the State Securities Commission shall notify in writing the issuer and post on the website of the State Securities Commission the receipt of complete issuance report documents of the issuer; in case of refusal, a written response clearly stating the reasons therefor must be given.
– Within 07 working days from the date on which the State Securities Commission notifies the receipt of complete documents of the issuance report, the issuer must publish the Notice of Issuance on the website of the issuer or the Stock Exchange. The disclosure of the above information must be made at least 07 working days before the end of the issuance.
– The date of completion of the issuance must not exceed 45 days from the date on which the State Securities Commission notifies the receipt of complete reporting documents.
– In the process of issuing shares to pay dividends or issuing shares to increase share capital from equity sources, in case fractional shares arise, the company may repurchase fractional shares as treasury shares according to the plan approved by the General Meeting of Shareholders or authorized by the Board of Directors. The shares acquired by this company are handled in accordance with the provisions of Clause 7, Article 36 of the Law on Securities and relevant regulations.
– Within 15 days from the date of completion of the issuance, the issuer must send the Report on the results of the issuance to the State Securities Commission and publish information on the website of the issuer and the Stock Exchange about the results of the issuance. In case of issuing shares under the employee option program, the document reporting the results of the issuance to the State Securities Commission shall enclose:
- The list of employees participating in the program specifies the number of shares of each employee who has paid for purchase or distribution (in case of issuing bonus shares to employees);
- A written confirmation of the bank or branch of the foreign bank where the blocked account is opened on the proceeds from the issuance, except in the case of issuing bonus shares to employees.
– Within 03 working days from the date of receipt of a complete and valid issuance result report, the State Securities Commission shall notify in writing the receipt of the issuance result report to the issuer and send it to the Stock Exchange, Vietnam Securities Depository and Clearing Corporation and post on the website of the State Securities Commission the receipt of the report on the results of the issuance.
– After receiving the State Securities Commission’s report on the results of the issuance, the issuer is required to stop blocking the proceeds from the issuance in case of issuing shares under the employee option program, except in the case of issuing bonus shares to employees.
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Benefits and risks of issuing an ESOP
Benefit
– Benefits for company employees: Employees will receive long-term profits from the value of company shares, the growth brings sustainable dividends to employees. A solution that generates passive income for employees.
– Benefits to businesses: ESOPs not only retain qualified and high-achieving workers with many contributions but also bring benefits to businesses. Accordingly, enterprises do not have to pay cash for salary and bonus, but use retained profits to issue shares. From there, it both increases charter capital for the company and creates new cash flows for reinvestment.
Risk
– When issuing an ESOP, the number of shares increases and dilutes the value of each company shareholder. From there, affecting the value of shares in the market;
– If a business leader gets too many ESOP shares when issued, it will easily lead to internal conflicts of interest, especially conflicts with the leadership class and employees.
The above is the content of KALF’s advice on The Pof Stock Administration under the Employee Option Program and related issues. All of our above advice opinions are based on applicable legal provisions. If you have any questions or requests about legal issues, please contact us for timely answers.
