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Viewpoint | The mandatory exit mechanism of employee stock ownership in state-owned enterprises.

Published:

2021-12-01

The reform of state-owned enterprises is a major strategic step for the central government to implement the policy of strengthening and increasing state-owned enterprises, which meets the objective needs of building a socialist market economy. Employee stock ownership can effectively increase the cohesion of enterprises and become an important part of the current round of mixed ownership reform of state-owned enterprises. Employee shareholding in state-owned enterprises involves a series of issues such as the company's equity structure, the daily management of employee equity and exit. In practice, the exit process of employee equity is more complex. Therefore, how to strike a balance between complying with laws, regulations and policies and ensuring the rights and interests of employees is not only related to the reform results of state-owned enterprises, but also related to the development of enterprises and the stability of the company's equity structure. An exit mechanism for employee shareholding. (I) classification According to the detailed rules for the implementation of the pilot work of employee stock ownership in state-owned enterprises in Shandong Province, the withdrawal of employee stock ownership includes voluntary withdrawal and compulsory withdrawal. The voluntary transfer mechanism is aimed at the situation where employees voluntarily withdraw from equity after the expiration of the lock-up period. Compulsory withdrawal is based on the basic principle of binding the interests of the pilot work of employee stock ownership in state-owned enterprises and fixing shares by post. When the position or status of an employee changes and no longer meets the conditions for holding shares, the mandatory withdrawal mechanism of employee stock ownership should be triggered to realize the change of post and stock and the withdrawal of shares. The forced withdrawal of employee stock ownership in (II) state-owned enterprises. Forced exit, also known as conditional forfeiture exit, refers to the loss of the original shareholding conditions, resulting in the loss of the employee's corresponding shareholding qualifications, thereby giving up the shares held. It can be roughly divided into two situations: one is job change. After the employee is transferred according to the requirements of the company, the new position does not apply to the employee stock ownership plan; the other is that the labor relationship between the employee and the company is terminated, and the original shares should be withdrawn. With regard to the compulsory withdrawal of employee stock ownership in pilot enterprises, Article (III) of Part IV of the opinions points out that if a shareholding employee leaves the company due to resignation, transfer, retirement, death or dismissal, the shares shall be transferred internally within 12 months. Two basic rules of compulsory withdrawal mechanism (I) Assignee 1, employee shareholding platform or company. 2. Eligible employees 3. Shareholders or management (II) exit price The Opinions point out that if it is transferred to a shareholding platform, qualified employees or non-public capital shareholders, the transfer price shall be determined through consultation between the two parties; if it is transferred to a state-owned shareholder, the transfer price shall not be higher than the audited net asset value per share of the previous year. The transfer of shares by employees of state-controlled listed companies shall be handled in accordance with the relevant provisions of securities supervision. (III) Forced Exit Classification 1, employee shareholding is not responsible for mandatory withdrawal. The triggering situation of normal employee resignation can be understood as the situation that the employee needs to quit due to the subjective fault of the employee, including:(1) formal retirement;(2) during the contract period, the employee loses the ability to work due to work injury or illness, quits the job and terminates the labor contract;(3) dies or is declared dead;(4) the company terminates the labor contract according to law due to incompetence;(5) The employee proposes to terminate the labor contract and does not join the competitor company within 2 years after the termination of the labor contract;(6) The company and the employee negotiate to terminate the labor contract;(7) The labor contract is terminated due to the transfer of the company;(8) The shareholding employee has other circumstances stipulated in the labor contract. If an employee involved in the shareholding withdraws due to a normal departure, the shareholding shall be withdrawn in one lump sum within a window of 12 months after the departure. 2, employee shareholding is responsible for mandatory withdrawal. A compulsory withdrawal is a situation in which the shareholding employee must withdraw from the shareholding due to a violation of the law, company regulations or due to the fault of the shareholding employee. The abnormal resignation of employees includes:(1) leaving the company without going through the resignation procedures;(2) engaging in similar competitive business with the company during or after leaving the company;(3) violating laws and regulations and company rules and regulations, the company terminates its labor contract according to law;(4) causing great economic losses to the company due to fault;(5) The shareholding employees have other violations stipulated in the labor contract. If an employee involved in a shareholding withdraws due to an abnormal separation, his shareholding must be withdrawn in full at one time when the abnormal separation situation is met. The exit price is not higher than the original purchase price. Three-strong exit operation process and practical dilemma solution (I) Force Exit Process 1, no responsibility forced exit process (1) No liability forced exit trigger event occurs. (2) Application or notice Depending on the triggering event, the shareholding employee shall submit a written application to the equity management institution or the equity management institution shall issue a notice of compulsory withdrawal of the equity ex officio. (3) Submission of materials For different situations of compulsory withdrawal without responsibility, the shareholding employee or the relevant entity shall submit different materials for withdrawal within a certain period of time, such as: if the shareholding employee resigns: a resignation letter, a resignation certificate and other documents shall be submitted to the shareholding management agency; If the shareholding employee dies or is declared dead: the successor or the person entrusted by the successor shall submit the death certificate or legal document and cooperate with the relevant formalities; If the shareholding employee needs to forcibly divide the property for personal reasons: if the shareholding employee needs to forcibly divide the personal property due to litigation, divorce and other reasons, relevant legal documents and agreements shall be submitted; Other circumstances in which the labor contract is terminated not due to the fault of the shareholding employee: submit the corresponding materials according to the specific circumstances. (4) Approval by the equity management agency (5) Determination of transferee shareholders and price (6) Complete the internal process (7) Sign the equity transfer agreement (including the time of payment of the transfer, the method of payment, etc.) and other agreements that need to be signed. 2. Responsible compulsory withdrawal process (1) The occurrence of a responsible mandatory withdrawal trigger event. (2) Notify and inform them of their obligation to cooperate When a responsible forced exit situation is triggered, the equity management agency shall issue a notice to the employee, which shall state the reasons for the employee's exit, the materials it should submit, and the work to be completed with the company. Depending on the circumstances of the withdrawal, the person who needs to withdraw is required to prepare the appropriate materials to submit to the company. (3) Implementation of the equity exit price in accordance with the provisions of the employee shareholding scheme (4) Complete the internal process Solving the Practical Dilemma of (II) Forced Exit 1, employee shareholding mandatory withdrawal from the validity of the articles of association provisions. At present, the policy of mandatory withdrawal of employee stock ownership is relatively general. Therefore, under the premise of not violating the "Company Law" and other laws and regulations, it is mainly based on the company's articles of association and the employee stock ownership plan formulated when establishing the employee stock ownership plan. The validity of the articles of association is usually based on the principle of not easily denying the validity of the articles of association in order to maintain the validity of the articles of association and the stability of the company's operation. When the formal elements of the charter are available, practice tends to affirm the validity of the employee's withdrawal clause. 2. Equity adjustment under special circumstances (no one takes over the equity, state-owned shareholders, non-state-owned shareholders and qualified employees inside and outside the platform are unwilling to accept or do not meet the requirements) If the employee's equity is forced to withdraw and the unqualified employee purchases, the employee shareholding management committee shall adjust it according to the actual situation until the company's registered capital is reduced. The methods of adjustment available to the Shareholding Management Committee are: (1) The nominee holding entity that plans to reserve equity is temporarily acquired for subsequent incentives; (2) Giving the platform a share repurchase function, whereby the shareholding platform buys back the shares, and the platform may use the repurchased shares as reserved shares for future incentives for employees; (3) Appropriate adjustment of employee shareholding conditions (e. g. relaxation of conditions) to allow employees who are willing to buy to buy; (4) Whether the state-owned shareholders and non-state-owned shareholders of the target enterprise are willing to buy, and if they still do not take over the main body, the capital will be reduced. Four Conclusion Most of the enterprises that adopt employee stock ownership focus on the entry of employee stock ownership in the early stage, but relatively ignore the design of the compulsory exit mechanism of employee stock ownership, which leads to the non-standard and unsmooth of the compulsory exit link in practice. Enterprises need to establish a more stable and objective mandatory exit mechanism in the employee stock ownership system to ensure the smooth progress of the mandatory exit of employee stock ownership and to ensure the full play of the advantages of the employee stock ownership policy of state-owned enterprises.

1The Exit Mechanism of Employee Stock Ownership

(I) classification

According to the detailed rules for the implementation of the pilot work of employee stock ownership in state-owned enterprises in Shandong Province, the withdrawal of employee stock ownership includes voluntary withdrawal and compulsory withdrawal.

The voluntary transfer mechanism is aimed at the situation where employees voluntarily withdraw from equity after the expiration of the lock-up period.

Compulsory withdrawal is based on the basic principle of binding the interests of the pilot work of employee stock ownership in state-owned enterprises and fixing shares by post. When the position or status of an employee changes and no longer meets the conditions for holding shares, the mandatory withdrawal mechanism of employee stock ownership should be triggered to realize the change of post and stock and the withdrawal of shares.

The forced withdrawal of employee stock ownership in (II) state-owned enterprises.

Forced exit, also known as conditional forfeiture exit, refers to the loss of the original shareholding conditions, resulting in the loss of the employee's corresponding shareholding qualifications, thereby giving up the shares held. It can be roughly divided into two situations: one is job change. After the employee is transferred according to the requirements of the company, the new position does not apply to the employee stock ownership plan; the other is that the labor relationship between the employee and the company is terminated, and the original shares should be withdrawn.

With regard to the compulsory withdrawal of employee stock ownership in pilot enterprises, Article (III) of Part IV of the opinions points out that if a shareholding employee leaves the company due to resignation, transfer, retirement, death or dismissal, the shares shall be transferred internally within 12 months.

2basic rules of forced exit mechanism

(I) Assignee

1, employee shareholding platform or company.

2. Eligible employees

3. Shareholders or management

(II) exit price

The Opinions point out that if it is transferred to a shareholding platform, qualified employees or non-public capital shareholders, the transfer price shall be determined through consultation between the two parties; if it is transferred to a state-owned shareholder, the transfer price shall not be higher than the audited net asset value per share of the previous year. The transfer of shares by employees of state-controlled listed companies shall be handled in accordance with the relevant provisions of securities supervision.

(III) Forced Exit Classification

1, employee shareholding is not responsible for mandatory withdrawal.

The triggering situation of normal employee resignation can be understood as the situation that the employee needs to quit due to the subjective fault of the employee, including:(1) formal retirement;(2) during the contract period, the employee loses the ability to work due to work injury or illness, quits the job and terminates the labor contract;(3) dies or is declared dead;(4) the company terminates the labor contract according to law due to incompetence;(5) The employee proposes to terminate the labor contract and does not join the competitor company within 2 years after the termination of the labor contract;(6) The company and the employee negotiate to terminate the labor contract;(7) The labor contract is terminated due to the transfer of the company;(8) The shareholding employee has other circumstances stipulated in the labor contract.

If an employee involved in the shareholding withdraws due to a normal departure, the shareholding shall be withdrawn in one lump sum within a window of 12 months after the departure.

2, employee shareholding is responsible for mandatory withdrawal.

A compulsory withdrawal is a situation in which the shareholding employee must withdraw from the shareholding due to a violation of the law, company regulations or due to the fault of the shareholding employee.

The abnormal resignation of employees includes:(1) leaving the company without going through the resignation procedures;(2) engaging in similar competitive business with the company during or after leaving the company;(3) violating laws and regulations and company rules and regulations, the company terminates its labor contract according to law;(4) causing great economic losses to the company due to fault;(5) The shareholding employees have other violations stipulated in the labor contract.

If an employee involved in a shareholding withdraws due to an abnormal separation, his shareholding must be withdrawn in full at one time when the abnormal separation situation is met. The exit price is not higher than the original purchase price.

3Forced Exit Operation Process and Practical Dilemma Resolution

(I) Force Exit Process

1, no responsibility forced exit process

(1) No liability forced exit trigger event occurs.

(2) Application or notice

Depending on the triggering event, the shareholding employee shall submit a written application to the equity management institution or the equity management institution shall issue a notice of compulsory withdrawal of the equity ex officio.

(3) Submission of materials

For different situations of compulsory withdrawal without responsibility, the shareholding employee or the relevant entity shall submit different materials for withdrawal within a certain period of time, such as: if the shareholding employee resigns: a resignation letter, a resignation certificate and other documents shall be submitted to the shareholding management agency;

If the shareholding employee dies or is declared dead: the successor or the person entrusted by the successor shall submit the death certificate or legal document and cooperate with the relevant formalities;

If the shareholding employee needs to forcibly divide the property for personal reasons: if the shareholding employee needs to forcibly divide the personal property due to litigation, divorce and other reasons, relevant legal documents and agreements shall be submitted;

Other circumstances in which the labor contract is terminated not due to the fault of the shareholding employee: submit the corresponding materials according to the specific circumstances.

(4) Approval by the equity management agency

(5) Determination of transferee shareholders and price

(6) Complete the internal process

(7) Sign the equity transfer agreement (including the time of payment of the transfer, the method of payment, etc.) and other agreements that need to be signed.

2. Responsible compulsory withdrawal process

(1) The occurrence of a responsible mandatory withdrawal trigger event.

(2) Notify and inform them of their obligation to cooperate

When a responsible forced exit situation is triggered, the equity management agency shall issue a notice to the employee, which shall state the reasons for the employee's exit, the materials it should submit, and the work to be completed with the company. Depending on the circumstances of the withdrawal, the person who needs to withdraw is required to prepare the appropriate materials to submit to the company.

(3) Implementation of the equity exit price in accordance with the provisions of the employee shareholding scheme

(4) Complete the internal process

Solving the Practical Dilemma of (II) Forced Exit

1, employee shareholding mandatory withdrawal from the validity of the articles of association provisions.

At present, the policy of mandatory withdrawal of employee stock ownership is relatively general. Therefore, under the premise of not violating the "Company Law" and other laws and regulations, it is mainly based on the company's articles of association and the employee stock ownership plan formulated when establishing the employee stock ownership plan.

The validity of the articles of association is usually based on the principle of not easily denying the validity of the articles of association in order to maintain the validity of the articles of association and the stability of the company's operation. When the formal elements of the charter are available, practice tends to affirm the validity of the employee's withdrawal clause.

2. Equity adjustment under special circumstances (no one takes over the equity, state-owned shareholders, non-state-owned shareholders and qualified employees inside and outside the platform are unwilling to accept or do not meet the requirements)

If the employee's equity is forced to withdraw and the unqualified employee purchases, the employee shareholding management committee shall adjust it according to the actual situation until the company's registered capital is reduced.

The methods of adjustment available to the Shareholding Management Committee are:

(1) The nominee holding entity that plans to reserve equity is temporarily acquired for subsequent incentives;

(2) Giving the platform a share repurchase function, where the shareholding platform buys back the shares, and the platform may use the repurchased shares as reserved shares for future incentives for employees;

(3) Appropriate adjustment of employee shareholding conditions (e. g. relaxation of conditions) to allow employees who are willing to buy to buy;

(4) Whether the state-owned shareholders and non-state-owned shareholders of the target enterprise are willing to buy, and if they still do not take over the main body, the capital will be reduced.

4Conclusion

Most of the enterprises that adopt employee stock ownership focus on the entry of employee stock ownership in the early stage, but relatively ignore the design of the compulsory exit mechanism of employee stock ownership, which leads to the non-standard and unsmooth of the compulsory exit link in practice. Enterprises need to establish a more stable and objective mandatory exit mechanism in the employee stock ownership system to ensure the smooth progress of the mandatory exit of employee stock ownership and to ensure the full play of the advantages of the employee stock ownership policy of state-owned enterprises.

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