Employee, executive officer, director and consultant exemption

A buyer who wants to give key staff shares or options after closing may be distributing securities. Section 2.24 of National Instrument 45-106 is the exemption from the prospectus requirement written for distributions to employees, executive officers, directors and consultants. See keeping key employees after you buy for the people side.

How section 2.24 works

Subject to section 2.25, section 2.24(1) covers a distribution by an issuer of its own securities, or by a control person of the issuer’s securities or of options to acquire them, with an employee, executive officer, director or consultant of the issuer or of a related entity, or with a permitted assign if participation is voluntary. The Alberta Securities Commission says issuers often rely on it to grant stock options to align employees’ interests with the employer.

What to check

• Whether the recipient fits a listed category, or is a permitted assign taking part voluntarily.
• Whether the issuer is an unlisted reporting issuer, since section 2.25 limits the exemption in some cases unless the conditions in section 2.25(3), including security holder approval, are met.
• Whether another exemption, such as the private issuer exemption, fits better.

This entry cites the instrument as the Ontario Securities Commission publishes it and the Alberta Securities Commission’s description; check the rules where you are.