Employee Share Schemes (ESS) give employees shares or the options to buy shares in the company as part of their remuneration. By aligning the employee’s interests to those of the company, ESS enables employees to share in the success of the business.

ESS provides an advantage for startups as they can avoid paying high salaries when they are the most cash-poor. However, current disclosure requirements can discourage small companies and startups from implementing an ESS, because it may result in the release of commercially sensitive information and it is costly to produce the documents.

What is changing?

The new reforms:

  • Limit the requirement for disclosure documents given to employees under an ESS to be made available to the public.
  • Consult with industry on options to make ESS more user-friendly.

When is it happening?

Legislation is expected to be introduced in the first half of 2016.

What to do

How will this work in practice?

ABC Pty Ltd is a startup that wishes to attract the best programmers by offering them an opportunity to share in its success through an employee share scheme.

The company proposes to issue more than $5,000 per person per year, which means they are not eligible for existing ASIC disclosure relief.

Scenario under existing law

ABC must lodge disclosure documents with ASIC, with the documents then becoming publicly available. A competitor is able to determine that ABC is not in the financial position to respond if it engages in a sustained period of discounting and raised marketing expenditure. ABC loses the race to become the primary app in their market and fails to reach profitability.

Scenario after new measures introduced

ABC’s financials are not disclosed and competitors do not respond accordingly. ABC’s app gains greater market share and the firm becomes profitable.

 

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Information courtesy http://www.innovation.gov.au/