With changes to the HKEX Chapter 17 amendment, issuers now have the flexibility to leverage existing shares for share option schemes. Establishing a governing structure for both the share award scheme and the share option scheme, the modified amendment and new rules broadens the sources of shares for share options and offers significant advantages for issuers. Keep reading to better understand the advantages gained using existing shares through an independent trustee.
Advantages of using existing shares through trustee
In the past, Chapter 17 primarily focused on share option schemes with newly issued shares. Now, the amendment effective January 1, 2023, allows for increased flexibility permitting the use of existing shares offering multiple advantages such as:
Minimized dilution:
By using existing shares, issuers can prevent the dilution of existing shareholders' equity. Unlike new shares, which increase the total share capital and dilute value, existing shares maintain the share value.
Simplified disclosure requirements:
The Chapter 17 amendment mandates extensive disclosure when using new shares/treasury shares for share award schemes. In contrast, using existing shares involves annual report disclosure only with less other complicated disclosure, making the process smoother and more efficient.
Streamlined administration:
Using existing shares can simplify the administrative process with less restriction on the design of scheme, as it eliminates the need for regulatory requirement and simplifies the complexities tied to issuing new shares.
Flexible scheme limit:
There is no specific limit for schemes using existing shares, which provides greater flexibility for the issuers by granting the award in according to the actual need of issuers. While there are limits on the number of new shares that can be issued under share schemes (capped at 10% of the issuer's total shares).
Positive market perception:
Using existing shares enhances market perception, reflecting the issuer's commitment to efficient resource management without resorting to dilution and the stability of cash flow.
Advantages of engaging an independent trustee
In addition to the advantages listed above of using existing shares, engaging and using an independent trustee can offer a number of benefits to the issuer, such as:
Flexibility in share acquisition:
When an issuer repurchases shares from the market, it faces numerous restrictions (e.g. price, disclosure requirement, etc). However, a trustee can purchase shares with fewer limitations, akin to regular shareholders, thereby simplifying the process.
Independent oversight:
An independent trustee serves as a neutral party, ensuring that the trust is set up and maintained in the best interests of plan participants. This alignment supports the issuer’s goals to effectively incentivize participants, while providing confidence through unbiased management.
Streamlined administration:
A professional third-party trustee can effectively manage the employee ownership scheme, especially when a provider offers both plan management and trustee services through a one-stop, single partner experience. This arrangement minimizes costs and simplifies communication for clients, reducing the effort required to coordinate with multiple service providers.
Stability and confidentiality:
A structure of trust can enhance confidentiality and stability, providing a secure and consistent framework for managing employee ownership scheme that may not be achievable with in-house administration.
For a simpler, more streamlined share plan scheme, consider leveraging existing shares through an independent trustee.