04 June 2014

CSRC: A Listed Company should Fully Solicit Opinions via a General Meeting of Employee Representatives before Implementing an Employee Stock Ownership Scheme

The China Securities Regulatory Commission (“CSRC”) recently published Guiding Opinions on the Pilot Implementation of Employee Stock Ownership Schemes by Listed Companies. This Opinion went into effect on June 20, 2014 and its main contents are as follows:

1. The listed company should allow employees to participate in the employee stock ownership scheme voluntarily. It must not compel employees to participate in the employee stock ownership scheme by way of arbitrary distribution, mandatory allocation, etc

2. All of the company’s employees can participate in the employee stock ownership scheme, including the management personnel

3. The funds needed for the employee stock ownership scheme may be obtained from the legitimate remunerations of employees and by other means allowed by laws and administrative regulations

4. Prior to implementing an employee stock ownership scheme, a listed company should fully solicit employees’ opinions via a general meeting of employee representatives or other similar means

5. A listed company should engage a law firm to issue written legal opinions on its employee stock ownership scheme and announce such written legal opinions prior to holding the general meeting at which the employee stock ownership scheme will be deliberated

6. The stock ownership scheme can include terms defining the scope of the employees’ rights to underlying shares and specifying ways to deal with the stock in the event that an employee resigns, retires or deceases.

KWM Comment: This Opinion is the execution of the “Mixed-ownership Economy” proposed at the Third Plenary Session of the Eighteen Central Committee of the Chinese Communist Party. The Opinion allows employees to use their labor income to make capital investments, which may help improve staff cohesion and company competence.

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