A Boost to Employee Share Offers and Capital Raising


January 27 2014


The overhaul of the laws that govern New Zealand’s financial markets took another big step last September with the passing into law of the Financial Markets Conduct Act 2013. The new regime established under the Act will be phased in over the next few years. Right now though, it’s worth concentrating on two aspects of the new regime that should be of interest to many businesses around the country: a broader exclusion from the standard disclosure requirements which should make offering employee share schemes easier, and wider-ranging exclusions which should make raising capital more cost-effective.

Employee share schemes

Employee share schemes can be a great way to attract, retain and incentivise staff, particularly for early-stage companies. However, these schemes aren’t widely used in New Zealand. Part of the problem is that the rules you currently need to comply with in order to offer an employee share scheme make doing so impractical and, in a lot of cases, also undesirable.

The exclusion that will be available under the new regime is less restrictive than the current rules, and will enable employers to offer these schemes with more flexibility, and on a more cost-effective basis. Officials have acknowledged that it’s important to facilitate these schemes whilst, at the same time, also ensuring that employees receive basic information about the investment decision they’re making. So, certain disclosures will need to be made to participating employees, including the company’s latest annual report and financial statements (to the extent available), information about how the shares can be sold, and prescribed statements about the risks of employee share schemes. The new exclusion should be able to be used from 1 April this year.

Capital raising

In terms of general capital raising; currently there are a range of exclusions from the need for full compliance with the Securities Act 1978 when sourcing capital from investors. There’s a lot of uncertainty and subjectivity associated with the current exclusions, which has meant that they’re not as helpful as they should be. The new Act carries over a number of the current exclusions, but makes them clearer with the introduction of more objective tests.

A significant change will be the introduction of a small offer exclusion. This will allow companies to raise up to $2 million from up to 20 investors in any 12 month period, through ‘personal’ offers. The rationale here is that compliance with the full disclosure requirements would outweigh the benefits of making the offer. It’s expected that companies that want to use the small offer exclusion will need to provide a prescribed warning statement to investors and notify the Financial Markets Authority (FMA) that they’re using it. The purpose of this is twofold. Firstly, to ensure investors are aware of their regulatory position and secondly, to help the FMA monitor the level of activity taking place in this area. This exclusion is also expected to come into force from 1 April this year.

Looking ahead

If you’re interested in other aspects of the new regime, the next step in its implementation will be the development of the draft regulations, which is currently underway. These will provide a lot of the detail for the framework established under the Act (including the content of the new disclosure documents), as well as on the new licensing frameworks and other key operational changes.

There’s plenty to plan ahead for, but if you’re looking at setting up an employee share scheme or raising capital in the next few months it’s business as usual and you still need to comply with the current rules under the Securities Act.

If you’re thinking of offering your employees some shares in your company or you’re undertaking some capital raising, do talk with us early on. Despite the new legislation, these are still complex activities and you’ll need advice from us and also your accountant.


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