Provisions of Shenzhen City on Employee Stock Option Plans
· Area of Law： Negotiable Instruments Securities
· Level of Authority： Local Regulatory Documents
· Date issued：01-11-2001
· Effective Date：01-11-2001
· Issuing Authority： Guangdong Province
· Status： Effective
Provisions of Shenzhen City on Employee Stock Option Plans
[January 11, 2001, No. 8 (2000) of Shenzhen Government]
Chapter I General Provisions
Article 1 These Provisions have been formulated to further promote the work for employee stock option plans (hereinafter referred to as ESOP), construct a community for enterprise benefits, intensify the incentive and the liability systems within enterprises, strengthen the personnel's status and consciousness as stakeholders, and sufficiently raise the personnel's enthusiasm.
Article 2 These Provisions shall apply to various types of companies established in Shenzhen City with the status of independent legal persons.
Article 3 Companies adopting the ESOP shall, in strict accordance with the requirements in the Company Law, establish and perfect the management structure as legal person, transform the operation system of the enterprises, strengthen internal scientific management, and continuously raise economic benefits.
Article 4 In accordance with the different circumstances of the enterprises, the proportion of the shares held by the employees among the company's total shares, the proportion of shares held by managers among the total shares of the employees, and the proportion of shares held by major managers among the total held by the whole managers shall be reasonably determined.
Chapter II Methods of Share-holding
Article 5 There are three major ways for the employees to hold shares, namely, the purchase of shares with capital, the awarding of share rights, and the conversion of technologies into shares.
Article 6 Purchasing shares with capital means the method of holding shares by which the employees obtain part or all of the company's property rights non-gratuitously. The purchase of shares is achieved by means of transferring property rights or enlarging the shares by increasing capital.
Article 7 The awarding of stock rights is the method of share-holding which is achieved by the company's direct awarding of stock rights to those proprietors and managers, important technical experts, and personnel who have made outstanding contributions to the company.
Article 8 The conversion of technologies into shares is the method of share-holding through which technical personnel converts their individually-owned patent technologies or unpatented technologies into the company's stock rights at a certain price.
Article 9 The awarding of stock rights shall be implemented on the basis of the proposal put forward by the management or the board of directors approved by the shareholders' meeting or the owner of the property rights. The conversion of technologies into shares shall be implemented in accordance with the "Measures of Shenzhen Special Economic Zone on the Administration of Transferring Technological Achievements into Stock Rights" and "Some Provisions on Further Supporting the Development of the High-tech Industry."
Article 10 The company may, in accordance with its particular circumstances, select with flexibility the major shareholders for industrial and commercial registration when practicing the system of ESOP which is implemented by way of:
(1) holding shares by the employees as natural persons;
(2) holding shares by the limited liability company or the company limited by shares (hereinafter referred to as the "holding company") established with capital jointly contributed by shareholding employees;
(3) holding shares in the name of the labor union as a public corporation.
Article 11 Where any shares held by an employee as an natural person, the employee shall undertake the rights and obligations of the shareholder in accordance with the provisions of the Company Law.
Article 12 Where the shares are held by a holding company, the holding company, as a corporate shareholder of an enterprise being restructured, shall undertake the rights and obligations as a shareholder in accordance with the provisions of the Company Law. The holding company shall not engage in other economic activities irrelevant to the ESOP, and this provision must also be incorporated into the articles of association of the company.
Article 13 Where any shares are held in the name of the labor union of the company, the labor union must first undergo legal person registration in accordance with Article 14 of the Work Union Law of the People's Republic of China, and obtain legal person status after examination, approval, and registration. The labor union shall represent the share-holding employees in exercising their rights and bear their obligations as shareholders.
Chapter III Purchasing Shares with Capital
Article 14 In the implementation of the ESOP, the qualifications for employees to purchase shares shall be decided by the company; any person outside of the company shall not, by any means, participate in the ESOP.
Article 15 The employees shall abide by the following principles when purchasing shares with capital:
(1) the principle of voluntary contribution of capital;
(2) the principle of jointly assuming risks and sharing benefits;
(3) the principle of openness, fairness and justice.
Article 16 The company shall be responsible for promulgating the proposal for the purchase of shares after sufficiently soliciting the opinions of the shareholding employees, and implementing it with the consent of the shareholders' meeting of the company or the owner(s) of property rights, and after going through relevant examination and approval procedures. The company shall, based on such factors as the employee's post, position, professional title, academic credentials, length of service and contributions, etc., and determine the amount or the proportion of the individual employee's purchase of shares by means of comprehensive grading.
Article 17 The procedures for employee to purchase shares are as follows:
(1) application made by the employee for the purchase of shares;
(2) examination of the applicant's qualification to hold shares;
(3) determination of the amount of shares to be held by the individual employee in accordance with the ESOP;
(4) public announcement of the amount of shares to be held by the employee;
(5) contribution of funds made by the employee to purchase shares;
(6) going through alteration registration at the to the industrial and commercial administration.
Article 18 The labor union shall, when holding employees' shares in the name of a public corporation, also issue a “certificate of employee's stock rights” to the shareholding employees, properly keep a name list of the shareholding employees, and submit them to the examination and approval department and the registration department for archivist purposes.
Article 19 The amount of shares held by the chairman of the board of directors and the manager shall be in a reasonable proportion to that held by ordinary employees, and it is the general principle that the maximum amount held by the chairman of the board and the manager shall not exceed 15 times the average amount of shares held by each employee.
Article 20 Where the ESOP is achieved by way of purchasing shares with capital, the company must conduct an assessment of its assets, and the price at which the employees purchase their shares shall be determined on the basis of the net value of the evaluated assets.
Chapter IV Source of Funds and Preferential policies
Article 21 The source of funds for the employee to purchase shares include:
(1) personally-contributed cash;
(2) money borrowed from the bank;
(3) loans granted by the owner of property rights or existing shareholders;
(4) money transferred from the surplus of the company's common welfare fund.
Article 22 The employee may be provided the following preferential policies when purchasing shares:
(1) the company shall be allowed to transfer the surplus of the company's common welfare fund to the employees for the purchase of stocks of the company according to Article 16, which provides the proportion of shares to be held by the employees decided on the basis of such factors like the post, post, etc. of the employee; however, the portion to be transferred shall not be more than 30% of the total amount of the shares purchased;
(2) the employee shall be permitted to make their payments by installments when purchasing their shares, but the initial payment shall not be lower than 40% of the total amount of the shares purchased and the term of payment shall not exceed three years; for a lump-sum payment, a discount of no more than 30% may be offered;
(3) for a state-owned enterprise in an fading sector, if the employees purchase the whole of the state-owned property, they may be offered a discount of no more than 30% for the purchase of shares. If the employees purchase the whole of the state-owned property by making a lump-sum payment, they may be offered a discount of no more than 35% for the purchase of shares.
Where all preferential policies are concurrently enjoyed, the proportion of the highest amount of discount shall not be higher than 35% of the total amount of the shares purchased. For companies in particular difficulty, the limit for the amount of discounts may be properly relaxed upon approval.
Chapter V Meeting of shareholding employees
Article 23 For a company whose employees hold shares in the name of natural persons or the labor union, a special meeting of shareholding employees shall be organized by the labor union. The meeting of shareholding employees is an internal management organization for the employees to hold shares, and the person in charge shall be democratically elected by the shareholding employees. The credits and debts incurred from the shares held by employees as natural persons shall be separately borne by the employee in accordance with the amount of shares held. The credits and debts incurred from the shares held by the labor union as a public corporation shall be borne by the labor union with stock rights of the shareholding employees.
Article 24 The meeting of shareholding employees shall maintain the lawful rights and benefits of the shareholding employees, and exercise the following functions:
(1) to be responsible for presiding and convening meetings of shareholding employees;
(2) to formulate and amend the articles of association of the meeting of shareholding employees;
(3) to collect and sort out the opinions of the shareholding employees;
(4) to examine the employee's qualification to purchase shares;
(5) to determine the amount for each individual employee to purchase shares;
(6) to manage reserved stock rights and reserve funds;
(7) to be responsible for buying back stock rights and distributing dividends;
(8) to regularly report to the shareholding employees on the work of the meeting of shareholding employees;
(9) to organize the shareholding employees and recommend and elect directors and supervisors for the company.
Article 25 The articles of association of the meeting of shareholding employees shall set out the following:
(3) rights and obligations;
(4) form and amount of capital contributions;
(5) the method of establishing the meeting of shareholding employees, its powers and procedures for discussion;
(6) dissolution and liquidation of the meeting of shareholding employees;
(7) management of the reserved shares;
(8) other matters.
Article 26 A holding company which holds the shares of employees is not to have a meeting of shareholding employees; the board of directors thereof shall be responsible for exercising those functions of the meeting of shareholding employees as listed in Article 24.
Chapter VI Reserved Share Rights
Article 27 For the convenience of the newly qualified employees to purchase shares, the company may reserve a portion of shares among the total amount of shares held by the employees; however, the reserved shares shall not in principle exceed 30% of the total amount of shares held by the employees. The reserved shares shall be purchased by means of collecting funds in lump-sum by the holding company or the meeting of shareholding employees, which shall also be specifically responsible for their management and operation.
Article 28 The dividends distributed from the reserved shares as well as the funds paid by the newly qualified employees for subscribing to shares shall first be used to repay loans and the interest thereof incurred by the holding company or the meeting of shareholding employees for the purpose of reserving the shares. When the principal and interest of the loans have been paid, the above-mentioned dividends and funds shall be converted into reserve funds.
Chapter VII Reserve Funds
Article 29 The reserve funds are the special turnover funds used by the holding company or the meeting of shareholding employees to purchase reserved stock rights or to purchase back the stock rights held by those who have disengaged from the company.
Article 30 The sources for the reserve funds are:
(1) funds borrowed in the name of the holding company or the meeting of shareholding employees;
(2) funds paid by the newly qualified employee for the subscription to shares;
(3) annual dividends distributed to the employees from their reserved shares.
Article 31 The reserve funds are used to:
(1) purchase reserved shares;
(2) purchase back the stock rights held by the those who have disengaged from the company;
(3) repay loans borrowed by the meeting of shareholding employees when it purchased the reserved stock rights and the interest thereof.
Article 32 The reserve funds must be used for their specific purposes. The financial department of the company shall set up a special account for such funds and be responsible for its accounting. The daily expenditures from such funds shall be examined and approved by the person in charge of the meeting of shareholding employees. Important expenditures from such funds shall be discussed and decided by the shareholding employees, and incomes and expenditures shall be disclosed each year to the shareholding employees.
Chapter VIII Distribution of Dividends
Article 33 Companies with shares held by employees shall follow the principle of equal rights for equal shares, distribute dividends on the basis of shares, and shall not damage the benefits of the state-owned shareholders or other shareholders.
Article 34 The shareholding employees shall repay the principal and interest of the loans with their distributed dividends in accordance with the provisions of the loan contracts. The portion of the principal and the interest thereof for the present year, which cannot be repaid with the distributed dividends, shall be gradually offset and repaid with the personnel's wages and bonuses.
Chapter IX Disposal of Stock Rights
Article 35 The shares held by the employees shall not be withdrawn. The stock rights held by those who have disengaged from the company shall be separately disposed of in accordance with the company's particular circumstances.
Disengagement from the company includes such circumstances as transfer of post, retirement, quitting, suspension of the salary but at the same time preserving the job, dismissal, expulsion or death, etc.
Article 36 Where the ESOP is carried out by means of shares held by the employees as natural persons, the stock rights held by those who disengage from the company are permitted to be transferred and inherited. The personnel shall satisfy the following conditions when transferring their shares:
(1) the period of shareholding must be five years or more;
(2) the number of shares transferred in each year shall not exceed one third of the total amount of the shares held by the personnel.
Article 37 Where the shares are held in the name of a holding company, the shares of the employees within the holding company shall be disposed of in accordance with the provisions of the Company Law when they disengage from the company.
Article 38 Where the ESOP is implemented by means of the shares held in the name of the labor union, the stock rights held by the employees shall be disposed of in the any of the following ways when any change occurs to the stock rights:
(1) the stock rights held by those who disengage from the company may be transferred within the company, and may be purchased back and turned into reserved shares if the meeting of shareholding employees could afford the payment.
(2) Stock rights held by those who have quit, been dismissed or disemployed, or expelled and have held their shares for less than three years, their shares shall be purchased back on the basis of their individually contributed amount of capital.
(3) Stock rights held by those who disengage from the company after holding their shares for three years or more, or by those who have transferred post, retired, or died with their shares held for less than three years, shall be purchased back at book value in the net assets at the end of the preceding year;
(4) For shares held by the those for three year or more and need to be cashed due to special circumstances, the stock rights are permitted to be transferred among the company's employees upon approval by the meeting of shareholding employees, and may also be purchased back by the meeting of shareholding employees if they could afford the payment.
Article 39 When the managers disengage from the company, they may not dispose of their stock rights in any way until they have been confirmed by the disengagement auditor as not bearing any more economic liabilities for the company's operation; for anyone who shall bear individual liability for the company's losses, he shall offset and compensate such losses with his own share rights.
Chapter X Supervision and Management Measures
Article 40 The proposal for the employees of a state-owned enterprise to hold shares shall be submitted for approval in accordance with the following provisions after being studied by the management or the board of directors of the enterprise:
(1) Postal institutions, banks, insurance institutions, etc., as well as enterprises with franchise or enjoying special preferential policies shall, when carrying out the ESOP, apply to the authority in charge and the owner of the property rights for approval.
(2) First grade enterprises subordinate to the municipality shall, when carrying out the ESOP, obtain the consent of the governing asset management company and then apply to the Municipal Administrative Office for State Assets for approval;
(3) Other enterprises subordinate to the municipality shall, when carrying out the ESOP, apply to the governing asset management company for approval;
(4) Enterprises subordinate to a district shall, when carrying out the ESOP, apply for approval in accordance with the provisions of the district government;
(5) Other state-owned enterprises shall, when carrying out the ESOP, obtain the consent of the owner of the property rights and then apply to the Municipal Office for Economic System Reform for check and approval.
Article 41 Enterprises with collective ownership shall, when carrying out the ESOP, apply to the city or district Administrative Office for Collective Assets for examination and approval.
Article 42 Private enterprises shall, when carrying out the ESOP, directly go through modification registrations at the municipal industrial and commercial administrative department on the basis of the decision of the shareholders' meeting of the company.
Article 43 Companies carrying out the ESOP need not handle property transaction procedures at the property transaction center if any change of state assets is involved.
Article 44 For any company carrying out the ESOP violates any of these Provisions, the liabilities of the main leaders of the company shall be investigated; in case any loss is caused to the company, such leaders shall bear the liability for compensation.
Chapter XI Supplementary Provisions
Article 45 For a company carrying out the ESOP, if the bonuses and the dividends distributed to those for purchasing the shares of the company, taxation on the individual income may be temporarily deferred, and the individual income taxes may be levied after stock rights have been transferred and modified.
Article 46 For a company carrying out the ESOP, it may either transfer the state-owned shares into preferred shares (that is, state-owned stock rights may distributed proceeds and dividends in accordance with the agreed proportions, but the state-owned shareholders will not gain more participation in the company's operations and decisions), or transfer the state-owned shares into preferred shares of participation (that is, in the case that the company does not operate well for a consecutive two years and the state-owned stock rights cannot be converted into the distribution of proceeds or dividends, the state-owned shareholders may exercise their right of selecting and recalling the managers according to the proportion of their share rights).
Article 47 The power to interpret these Provisions shall remain with the People's Government of Shenzhen City.
Article 48 These Provisions shall come into force on the date of its formal promulgation. The execution of the "Interim Provisions of Shenzhen City for Experimenting the ESOP" [Issuance No. 21 (1997), Shenzhen Government] shall be at the same time terminated.