Participation by PRC citizens in stock option and other equity compensation plans offered by offshore companies have always presented particular regulatory hurdles in the PRC. These included the need to avoid such participation becoming a “public offering” under the PRC Securities Law, and various restrictions on the ability of grantees to obtain foreign currency to pay the exercise price for
options or other types of awards. Since the first batch of privately owned China-based companies listed on NASDAQ in 2000, a number of approaches to address these issues have become fairly customary, however, allowing widespread participation by PRC citizens in a variety of offshore
equity compensation plans.
Although these approaches – which include, for example, allowing PRC citizens to pay the stock option exercise price with foreign currency legitimately obtained offshore – were not explicitly endorsed by the PRC government authorities, it was widely believed that the authorities tacitly accepted them. Moreover, there was no attempt to regulate the grantees of equity compensation
awards (other than routine tax collection) or the manner in which the equity compensation plans were administered.
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