The Czech law provides – under Act No. 256/2004 Coll., the Capital Market Undertakings Act (the "Act") – the obligation to publish a securities prospectus, if those securities are offered to random investors in the Czech Republic. But does this obligation also apply to employee share incentive schemes and are there any exceptions to this obligation?

Generally, share incentive schemes are considered supplementary instruments that companies use to remunerate current, former or future employees or executives. Their main purpose is to ensure the participation of employees or executives in the economic growth of the company through the offer of securities traded on a stock exchange. The theory being that such participation in the company's economic growth should be a motivation to improve their work performance.

Share incentive schemes are usually globally implemented by a parent company for all its subsidiaries across a number of jurisdictions. Based on the tax regime, scope of recipients, the kind of remuneration, or other aspects, several basic forms of share incentive schemes can be distinguished. In the Czech Republic, the most common share incentive schemes are share incentive plans (SIPs), save-as-you-earn schemes (SAYEs) and long-term incentive plans (LTIPs). In terms of the underlying investment instrument, the most frequently offered are ordinary shares, restrictive share units (RSUs), stock appreciation rights (SAR), phantom share options or other equivalents, such as dividend equivalents rights or performance shares.

Offer to the public and obligation to publish a securities prospectus

An offer to the public would occur where an offeror communicates information containing details on offered securities and conditions for their acquisition to a wider group of people. Such information must be sufficient so as to enable any investor to make an informed decision to purchase or subscribe such investment securities. Further, a securities prospectus must be prepared and published to serve as a source of information about the issuer, its current and future economic situation, and about the offered securities themselves. Based on this standard, securities issued under share incentive schemes are generally considered as being offered to the public, unless any of the exceptions stated below apply.

Implicit exceptions from the obligation to publish a securities prospectus

The share incentive scheme must be preceded by the publication of a securities prospectus only if the potential recipients of an offer have the possibility to make the investment decision (i.e. to decide whether they want to accept the offer and participate in the scheme), and the underlying security of the scheme is transferable. Nevertheless, the latter condition on transferability will be said to exist even in case of a non-transferable security option where the vesting period is short (generally less than one year) from the granting of the option. In such a case, a look though approach would be applied, resulting in the option possibly being considered an offer of the underlying security itself, and accordingly, being subject to the publication requirement.

Statutory exceptions from the obligation to publish a securities prospectus

In addition to the implicit exceptions, the Act provides for explicit exemptions from the obligation to publish a securities prospectus that may be applicable for employee share incentive plans. These exceptions would typically include the following:

1.         Minimum consideration

If the amount of the overall consideration does not exceed EUR 1 million, calculated for all securities issued within all EU member states, the obligation to publish the securities prospectus does not apply.

The same applies to a gratuitous offer of securities.  Note: if there is hidden consideration provided by an employee against the issued securities (e.g. by assuming a non-compete obligation), the securities could be considered as issued for consideration, and not gratuitously.

2.         Limited group of recipients

If the group of recipients of an offer of securities does not exceed 150 people in one EU member state, the securities prospectus does not have to be published.

3.         Offer to employees

The last potential exception to the obligation to publish applies to an offer or assignment of securities by an employer or other group to its current or former employees, or management, provided that the employer or group is seated in any EU member state, or in for a non-EU legal entity, its securities are accepted for trading on a European regulated stock market, or on a non-European regulated stock market equivalent to a European regulated stock market as decided by the European Commission under an "equivalence decision".[1]Moreover, for this exception to apply, it is mandatory to submit a document to the Czech National Bank containing information about the number and type of securities and the purpose and details of the offer.


In light of the above, it is advisable first to analyse whether the investment instruments issued under share incentive schemes may be classified as investment securities pursuant to the Act and, at the same time, whether all characteristics of an offer to the public are present. If yes, the three exceptions outlined above should primarily be assessed. If none of the exceptions available under the Act apply, the securities in question are considered as issued through an offer to the public, and this issuance must be preceded by the publication of a securities prospectus.