Compliance

Bill Would Encourage More Employee Stock Ownership

The legislation would reform the Securities and Exchange Commission (SEC) Rule 701, which imposes a slew of regulations on small businesses, especially newly formed start-ups.

By Rebecca Moore editors@assetinternational.com | April 18, 2017

The House of Representatives passed the Encouraging Employee Ownership Act (H.R.1343) by a bipartisan vote of 331 to 87.

A press release from the office of Congressman Lee Zeldin (R-New York) says the legislation would reform the outdated Securities and Exchange Commission (SEC) Rule 701, which imposes a slew of complicated regulations on small businesses, especially newly formed start-ups. SEC Rule 701 exempts companies below a $5 million threshold to offer securities as part of employees’ compensation without having to comply with federal securities registration requirements. Companies over the threshold must provide additional disclosure, “creating a significant obstacle for companies that want to compensate their employees through equity or other securities such as stocks,” the release says.

According to an update by the National Center for Employee Ownership (NCEO), the bill would increase to $20 million the current $5 million cap on the amount of stock closely held companies can award employees before triggering certain SEC reporting requirements. The amount would be indexed for inflation annually.

Congressman Zeldin says, “The Encouraging Employee Ownership Act of 2017 is bipartisan legislation that will help small businesses grow and expand, encouraging job creation and economic growth, by allowing companies to retain their employees through incentives.”

Text of the bill and actions related to the bill can be viewed here.