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China: New Regulations on the Employee Stock Ownership Plans of Listed Companies

The China Securities Regulatory Commission (CSRC) issued the Circular on the Interim Administrative Measures for Employee Stock Ownership Plans of Listed Companies (Draft for Comments) (“Draft ESOP Measures”) on August 4, 2012, in order to regulate and guide the listed companies in implementing the Employee Stock Ownership Plans (ESOP) and other related activities. Comments and proposals to this Draft ESOP Measures can be submitted either in writing or by e-mail to the CSRC by August 17, 2012. 

Generally speaking, an ESOP provides a company’s employee with an ownership interest in the company. Upon the consent of the employees, the company will entrust certain assets management institutions to manage parts of the employees’ assets by purchasing the company stock from the secondary security market and hold the stocks for a relatively long period, and stock interests will be distributed to the employees as agreed. China has previously introduced similar stock incentive plans that encouraged only directors, supervisors and senior executives to own stakes in listed companies, and is now expanding the scope of plans to be applied to all the employees of the listed companies. Some highlights in the Draft Measures are listed as below: 

I. General Provisions 

According to the Draft ESOP Measures, annual assets used for ESOP shall come from the wages, bonuses and other cash remunerations paid to employees for the last 12 months, and the total amount shall not exceed 30 percent of their total cash compensations. Several other restrictions apply. For instance, total capital investment of employees used for the ESOP shall not exceed one-third of their household financial assets. Additionally, the cumulative value of shares held through all valid ESOP of a listed company may not exceed 10 percent of the company’s total share capital, and the cumulative number of shares distributed to a single employee shall not exceed one percent of the total share capital of the company. Finally, the Draft ESOP Measures provide that the period of holding the stocks obtained through the ESOP shall be no less than 36 months, commencing from the date of announcement made by the listed company on the completion of stock purchase. 

II. Regulations of the Asset Management Institutions 

Pursuant to the Draft ESOP Measures, listed companies shall only entrust the following asset management institutions for management of the ESOP: (1) trust companies; (2) insurance assets management companies; (3) securities companies; (4) fund management companies; or (5) other qualified assets management institutions. Asset management institutions are prohibited from managing the ESOP for their own institutions, the listed companies controlled by them, their controlling shareholders, actual controllers, or a company under the same control. 

III. Implementation Procedures and Disclosure Requirements 

The Board of a listed company shall put forward the ESOP draft and submit it to the shareholders’ meeting to vote, and the independent director shall express his/her opinions on whether the ESOP will benefit the sustainable development of the company and whether or not it will negatively impact the interests of the company and the shareholders. Within 2 business days after approval of the ESOP draft by the Board, the board resolution, the summary of the ESOP draft, and the independent director’s opinions, as well as the assets management agreement with assets management institutions shall be publicized by the listed companies. Within two business days after approval of the ESOP by the shareholders’ meeting, the listed companies shall handle the disclosure formalities in the stock exchanges. 

A listed company shall disclose the following items regarding the implementation of the ESOP in its periodic report: (1) the scope and number of shareholding employees during the reporting period; (2) the total number of shares held through ESOP during the reporting period, and its proportion to the total share capital of the listed company; (3) change of stock interests caused by exercising rights by the ESOP participants; (4) change of assets management institutions; and (5) other matters that shall be disclosed. 

  • Circular on Soliciting Comments on the Interim Administrative Measures for the Employee Stock ownership Plans of Listed Companies (Draft for Comments) 
  • Issuing Authority: the China Securities Regulatory Commission 
  • Date of Issuance: August 4, 2012 / Effective date: N/A  
©2023 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume II, Number 356

About this Author

George Qi, Greenberg Traurig Law Firm, Shanghai, Corporate and Finance Law Attorney

George Qi is the Co-Managing Shareholder in the firm's Shanghai office. He practices primarily in China-related cross- border mergers and acquisitions, foreign direct investment and general corporate matters. He also has wide- ranging experience advising both U.S. and non-U.S. companies relating to internal investigations of FCPA or other regulatory violations.

Areas of Concentration

  • Corporate

  • Compliance

  • Foreign Corrupt Practices Act...

Dawn (Dan) Zhang, Greenberg Traurig Law Firm, Shanghai, Corporate Law Attorney

Dawn (Dan) Zhang is Co-Managing Shareholder of the Shanghai Office and has broad experience advising clients on China-related cross-border mergers and acquisitions, restructuring, joint ventures, funds, and general corporate matters. Before joining Greenberg Traurig, Dawn practiced in other international law firms for many years and served as the PRC legal counsel for a multinational corporation, where she handled a wide variety of corporate matters for public and emerging growth companies. Dawn passed the national PRC judicial qualification examination in 1998 and is...