Proper Use of S-8 Registration Statements

by Laura Anthony, Esq. on November 17, 2009 in Form S-8, SEC Guidance

A Form S-8 registration statement is popular with small business issuers because it becomes effective immediately upon filing and allows for incorporation by reference, two benefits not always available to smaller public companies. A Form S-8 registration statement can be used by Issuers to register securities to be offered to employees under certain employee benefit plans.

To qualify to use an S-8 registration statement the Issuer must: (i) be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended; (ii) have filed all reports required to be filed during the preceding 12 months, or such shorter period of time that the Issuer has been subject to the reporting requirements; (iii) is not a shell company and has not been a shell company for at least 60 calendar days previously; and (iv) if it has been a shell company at any time previously, has filed current Form 10 information with the Securities and Exchange Commission (SEC) at least 60 days previously reflecting that it is no longer a shell company.

S-8 Stock, Employees and Consultants

An S-8 registration statement is used to register securities to be offered to employees under certain employee benefit plans. For purposes of an S-8 the term employee benefit plan means any written purchase, savings, option, bonus, appreciation, profit sharing, thrift, incentive, pension or similar plan or written compensation contract solely for employees, directors, general partners, trustees (where the registrant is a business trust), officers, or consultants or advisors.

Form S-8 is available for the issuance of securities to consultants or advisors only if: (i) they are natural persons; (ii) they provide bona fide services to the registrant; and (iii) the services are not in connection with the offer or sale of securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market in the Issuer’s securities. Accordingly, the SEC has taken the position that Form S-8 cannot be used to register an employee benefit plan that allows for the issuance of securities to unqualified consultants or advisors, even if the Issuer does not intend to issue such securities under the plan following registration.

S-8 and Employee Benefit Options

The Form S-8 is also available for the exercise of employee benefit plan options and the subsequent resale of the underlying securities by an employee’s family member who has acquired the options from the employee through a gift or a domestic relations order. The payment of compensation by the family member will disqualify the use of Form S-8. The S-8 registration is strictly for use by qualifying individuals. If an employee transfers options received under a benefit plan, to a non-employee other than a family member, such recipient may not use the S-8 registration to exercise the option and receive registered shares. Accordingly, upon exercise of the option, the third party would receive restricted, unregistered shares.

Form S-8 and Bad Boy Provisions

Form S-8 is also subject to the Securities Act of 1933 bad boy provisions. That is, any Issuer or any entity that at the time was a subsidiary of the issuer, that within the past three years “was convicted of any felony or misdemeanor described in paragraphs (i) through (iv) of [S]ection 15(b)(4)(B) of the Securities Exchange Act of 1934” if ineligible to use Form S-8. The described wrongdoings include convictions which: (i) involves the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, any substantially equivalent activity however denominated by the laws of the relevant foreign government, or conspiracy to commit any such offense; (ii) arises out of the conduct of the business of a broker, dealer, municipal securities dealer, government securities broker, government securities dealer, investment adviser, bank, insurance company, fiduciary, transfer agent, nationally recognized statistical rating organization, foreign person performing a function substantially equivalent to any of the above, or entity or person required to be registered under the Commodity Exchange Act (7 U.S.C. 1 et seq.) or any substantially equivalent foreign statute or regulation; (iii) involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, or securities, or substantially equivalent activity however denominated by the laws of the relevant foreign government; or (iv) involves the violation of section 152, 1341, 1342, or 1343 or chapter 25 or 47 of Title 18, or a violation of a substantially equivalent foreign statute.

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!


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