Updates From Beijing and Shanghai SAFE Bureaus
In conjunction with various pending SAFE applications, the SAFE Bureaus in Beijing and Shanghai have offered a number of clarifications and raised some new issues, the most noteworthy of which are summarized as follows:
Registration Requirements for Amended and Restated Plans
Beijing SAFE clarified that if a company amends and restates an equity compensation plan (a "successor plan") for which SAFE approval previously was obtained and no material differences exist between the terms of the awards granted to PRC employees under the original plan and the successor plan, the company only should include detailed information regarding the successor plan in the registration application when seeking approval for the same.
Further, Beijing SAFE clarified that a separate bank account is not required for the successor plan and the company can use the same dedicated bank account that was approved for the original plan.
Companies should note that Beijing SAFE continues to require companies to seek SAFE approval of any plan amendments (including amended and restated plans) within three (3) months of approval by company shareholders.
ESPP Quota Approval Requirements
Beijing SAFE clarified that for companies seeking approval to offer participation in an employee stock purchase plan ("ESPP") to Chinese employees, the quota approval for outward remittances runs 12 months from the date of approval (as opposed to 12 months from the end of the applicable calendar year). Thus, companies seeking approval for an outward remittance quota should be mindful to coordinate the purchase period(s) that will run during the approval period to ensure that sufficient quota is available.
In addition, if an approved quota is insufficient to cover the outward remittance of payroll deductions in connection with a company’s ESPP, the company should apply to Beijing SAFE for the cancellation of its previous quota approval and request a new quota approval based on the expected remittance amounts (again, the new quota will apply for 12 months following Beijing SAFE’s approval of the request).
Uncertain Treatment of Awards Granted under Plans Adopted Prior to IPO
As part of a number of applications submitted in connection with companies undertaking an initial public offering ("IPO"), Shanghai SAFE has raised numerous questions about awards granted under previously adopted equity compensation plans ("pre-IPO plans").
While we continue to work with Shanghai SAFE to understand and resolve their concerns, companies in similar positions should note that the process for securing SAFE approval in Shanghai may be extended and it is even possible that Shanghai SAFE may reject such applications (or at least the portion of applications dealing with awards granted under pre-IPO plans).