Definition of Form S-8
Form S-8 is a registration form to be filed by public companies in the US, mandated by the provisions of the Securities Exchange Act, 1933 and required by Securities Exchange Commission (SEC), as a part of any employee benefit plan, after which the public companies will issue securities to its employees, and such reporting helps investors to be protected from fraudulent practices.
What is Form S-8?
- Form S-8 is a registration statement that needs to be filed by public companies before the issuance of securities to employees under an employee benefit plan.
- One of the best things about form S-8 is that it is effective immediately after filing to SEC.
- We need to know the definition of “Employee” here. Employee means any person providing service to the Company in the capacity of an employee, a director, a general partner, a consultant, an advisor or a trustee. However, the employee should not include such a person involved in capital raising services or market-making activities for the company’s stocks.
- Capital raising services means those services by which the issuer-company receives the cash proceeds. Market-making activities mean such activities that promote the stocks of the issuer. The instructions to Form S-8 specifically state that this form should not be used for capital raising purposes.
- Moreover, the definition is also extended to include the insurance agents (activating exclusively for the company, individuals who are currently not in employment of the Company (former employees) and relatives of a deceased employee.
- The SEC, however, exempts small offerings or interstate offerings or offerings made by governments.
- The issuer needs to pay registration fees to the SEC based on the value of stock and quantum of stocks issued.
Advantages
Let’s have a look over its advantages:
- The securities can be traded freely since the issue is effective immediately after filing to SEC.
- The registration statement is short and sweet. Before the amendment in 1990, the form required information about the prospectus delivery and few disclosure requirements, which anyway were included in reports of the issuer filed with SEC separately. Thus, this form is called a “Short form registration form”.
- Long-form registration statements used to take up to 18 months to be effective. After the amendment in 1990, this form is effective immediately. This saves time on the lengthy review process.
- Employees are the ones who work day and out for the turnaround of the company. Thus, Form S-8 provides compensation for the loyalty received from the employees over the years.
- Even if they are flooded with huge reserves, many companies face a cash crunch due to heavy investments made in recent times. Thus, Companies can use this option against cash compensation for the loyalty of the employees.
- Also, issuers can save cash reserves by issuing securities instead of cash compensation. These cash reserves can be diverted to capital commitments.
Disadvantages
- The present shareholder will suffer dilution of their shareholding in the Company. Thus, compensating the loyalty of employees will ultimately cost the dilution of shares.
- The registration statement demands the cost of registration, which is based on the value of a stock.
Considering the advantages over their disadvantages, we can conclude the Form S-8 is a good option.
Registration Requirement of Form S-8?
- The Form S-8 requirements are pretty clear about the fact that these cannot be issued for the capital-raising purpose. Further, it restricts the promotion of the stocks or making market of the issuer company.
- The registration statement restricts a company that has been a shell Company within 60 days prior to filing or which is a shell company at present. So, these companies cannot file Form S-8.
- The issuer company needs to pay registration fees which are based on the quantum of stocks to be issued and the value.
- The issuer is required to have reported under Section 13 or Section 15(d) of the Securities Exchange Act, 1933.
- The consultants or advisors who would be receiving compensation in the form of S-8 securities must act bona fide in providing their services to the Company and not under any pressure of holding stocks. Also, there must be an agreement in writing between the issuer and consultants for the services to be provided.
- However, the said consultant or advisor should not be involved in promoting the stocks of the issuer.
- The recipient of stock must be a natural person. Thus, corporate persons cannot be entitled to securities under Form S-8.
- Following employees are prohibited by Form S-8 since these involve promotion or market-making:
- Involved in management of reverse mergers
- Brokers who attract investors for the company
- Owners of websites who recommend the stocks of the Company or even if they discuss the Company’s business
- Persons involved in providing investor relations services for the issuer
- Persons involved in merger activities on behalf of the issuer.
- Consultants or advisors providing the following services are allowed under the Form S-8 parameters:
- Persons providing book-keeping services to the issuer.
- A person who designs a website of the issuer
- Persons involved in technology development for the issuer
- Involved in banking credit lines
- Product advertising of the Company.
Example of Form S-8
We refer to the website of the SEC for the latest Form S-8 filed by companies: https://sec.report/Form/S-8.
Example #1
Issue of Securities by 908 Devices Inc.
- The form is submitted on December 26, 2020, by the Company “908 Devices Inc.”
- The issuer is a Non-accelerated filer, small reporting Company and Emerging growth Company as per Rule 12b-2 of the Exchange Act, 1933.
- The total number of stocks to be registered is 5,591,857, with a price band of $ 1.96 to $ 49.00 per share. The issuer has paid registration fees of $ 12,397.12
- The Form S-8 of the Company can be accessed at :
https://sec.report/Document/0001104659-20-139315/
Example #2
Issue of Securities by Herman Miller Inc.
- The form is submitted on December 22, 2020, by the Company “Herman Miller Inc.”
- The issuer is an Accelerated filer as per Rule 12b-2 of the Exchange Act, 1933.
- The total number of stocks to be registered is 7,182,670, with a price band of $ 37.06 per share. The issuer has paid registration fees of $ 29,041.30
- The Form S-8 of the Company can be accessed at :
https://sec.report/Document/0000066382-20-000073/
Conclusion
- This form is immediately effective after filing, provided the issuer has complied with reporting requirements under section 13 or Section 15(d) of the Securities Exchange Act, 1933.
- Companies who are shell Companies at present or were shell Companies within 60 days are eligible to file this form.
- Form S-8 is a short-form registration form requiring the least disclosures as compared to long-form registration earlier.
- The consultants and advisors must act in a bonafide manner after the issuance of securities, and there should be an agreement in writing between the issuer and the consultant.
- Form S-8 is issued to employees, and the definition of employees is wide enough to cover major service providers. However, it does not include persons involved in capital-raising activities for the issuer or the market maker of the stocks of the issuer.
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