Permissible Uses of Form S-8

Securities Lawyer 101 Blog

Registration of securities on Form S-8 (“Form S-8”) is a  short-form registration statement under the Securities Act of 1933, as amended (the “Securities Act”).  Form S-8 is available to register securities offered to employees and consultants under benefit plans under limited circumstances.

Because a registration statement on Form S-8 is effective upon filing it offers benefits to issuers, most significantly that an S-8 registration statement becomes effective upon filing and  the shares registered may be issued without a restrictive legend. As discussed below, the use of S-8 is restricted and may only be used by certain issuers under limited circumstances.  In recent years, the misuse of Form S-8 has been the subject of  numerous Securities and Exchange Commission (“SEC”) enforcement actions.

Because of perceived abuses of Form S-8, in 1999 the SEC amended Regulation S-8. The amendments stemmed from Form S-8 being used by stock promoters and issuers to orchestrate large illegal distributions of securities by allowing “consultants” to immediately sell their S-8 securities to the public.

Frequently, the proceeds from shares registered on Form S-1 were delivered back to the issuer and used to fund the issuer or  compensate stock promoters.

According to the Securities and Exchange Commission (“SEC”), S-8 recipients often acted as “conduits” who performed little or no services for the issuer, other than marketing the issuer’s securities and conducting their illegal securities sales, the proceeds of which were being funded back to the issuer or its promoters.”

On July 15, 2005, the SEC amended Form S-8 to prohibit its use by shell companies.  A shell company is a company that has no or nominal operations, and either no or nominal assets or assets consisting of cash and cash equivalents.

While many benefits remain for the use of Form S-8, an issuer must strictly conform to the following requirements for the use of Form S-8:

♦ Immediately before the time of filing the registration statement, the issuer must be required  to file reports under Section 13 or Section 15(d) of the Exchange Act;

♦ the issuer must have filed all reports and other materials required to be filed by Section 13 or Section 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports and materials);

♦ the issuer cannot be a shell company and cannot have been a shell company for at least 60 days before filing of the Form S-8 registration statement;

♦ if the issuer has been a shell company at any time, it must have filed current “Form 10 information” with the SEC at least 60 days prior to the filing date of the S-8 reflecting its status as an issuer that is not a shell company;

♦ the S-8 Share recipient  must be a natural person and not a corporate entity;

♦ the S-8 Shares must only be used to compensate a person who provides bona fide services to the issuer;

♦ the services provided must  not be in connection with a capital raising transaction;

♦ the services provided must not directly or indirectly promote or maintain a market for the issuer’s securities; and

♦ the agreement for the services provided must be in writing;
Prohibited Services.

Compensation with securities registered on Form S-8 are strictly prohibited in the following service categories:

♦ shareholder communications services (i.e. preparation of press releases or other publicly disseminated information regarding the issuer);

♦ arranging for or affecting merger transactions which cause a private company to become publicly traded;

♦ capital raising services;

♦ Internet or other newsletter writers who “tout” the issuer’s securities, recommend the issuer’s securities or who otherwise simply discuss the issuer’s business;

♦ spam email services; and

♦ any other service which relates to the publishing or dissemination of information “that reasonably is expected to influence the price of the issuer’s securities.”

The following are a few of the illegal uses of Form S-8 which have been subject to recent SEC enforcement actions:

♦ repayment of loans with S-8 securities;

♦ delivery of S-8 proceeds disguised in the issuer’s financial statements as an investment in the issuer’s restricted securities;

♦ delivery of S-8 proceeds disguised in the issuer’s financial statements as a loan; and

♦ payment of an issuer’s bills or obligations with S-8 proceeds.

The Benefits That Remain

♦ A registration statement on Form S-8 is immediately effective upon filing and unrestricted securities can immediately be issued;

♦  S-8 is a short form registration statement which requires an abbreviated disclosure format much of which is satisfied by incorporation by reference to periodic and other reports filed by the issuer;

♦ Consistent with its regulatory purpose, issuers may use Form S-8 to issue free trading securities (subject to volume limitations) to its employees, officers, directors, consultants or advisors as an incentive or for compensation for permissible services; and

♦ S-8 is an alternative to cash compensation.

For more information about the SEC investigations, see:

http://www.sec.gov/divisions/enforce/enforcementmanual.pdf

Securities lawyer, Brenda Hamilton provides legal advice to market participants about  securities matters including SEC investigations and testimony.

For further information about SEC registration statements on Form S-8 and Form S-1, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit www.securitieslawyer101.com

This informational memorandum about SEC registration statements on Form S-8 and Form S-1 is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the SEC investigations including wells notices and subpoenas, unregistered offerings, ponzi schemes, Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, 1933 Act registration statements on Form S-1, S-8 and 1934 Act registration statements on Form 10, OTC Pink Sheet listings, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, going public direct transactions and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or by email a info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney

101 Plaza Real South, Suite 202 N
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com

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