The U.S. House of Representatives has voted 331-87 to pass the Encouraging Employee Ownership Act, H.R. 1343. The bipartisan legislation, introduced by Rep. Randy Hultgren (R-Ill.) seeks to make it easier for companies to offer employees stock options.
The bill, Hultgren says, “cuts through red tape and eases the ability of companies to offer ownership to their hardworking employees.” He is the vice-chairman of the Financial Services Subcommittee on Capital Markets, Securities and Investment.
Currently, the Securities and Exchange Commission’s Rule 701 mandates various disclosures for privately held companies that sell more than $5 million worth of securities for employee compensation over a twelve month period. These disclosures include risk factors, copies of the plans under which the offerings are made and certain financial statements.
The proposed legislation amends Rule 701 to raise the disclosure threshold from $5 million to $10 million and adjust the threshold for inflation every five years. Issuers that are exempt from disclosure would still have to comply with all pertinent antifraud and civil liability requirements.
Rep. Lee Zeldin (D-N.Y.) was among those testifying in support of the legislation on Nov. 4. “By regulating small start-up ventures as if they are large publically traded companies, the SEC is imposing an unnecessary mound of paperwork on start-ups,” he said. “Start-up ventures can reward hardworking employees by giving them direct ownership while the business continues to grow by offering their employees a stake in the company through equity and other forms of deferred compensation. “
The SEC rule governing these compensation plans haven’t been updated since 1999, he added, describing the current threshold and its disclosure requirements as a “compliance tax.”