Key Changes for Unlisted Companies Establishing an Employee Incentive Plan Under Proposed ASIC Instrument

While the sun sets ASIC Class Order [CO 14/1001] (Class Order), which is due to expire on 1 April 2025, the draft ASIC Corporations (Employee Incentive Schemes – Ongoing Relief) Instrument 2025/XX (2025 Draft Instrument) sheds light on the proposed details of ASIC’s updated orders for relief for employee incentive schemes used by unlisted companies to offer shares and options to employees. 

The Australian Securities and Investments Commission’s (ASIC) 2025 Draft Instrument will see a welcome update to the regulatory framework for employee incentive schemes. This article examines the key similarities and differences between the two regulatory frameworks, highlighting what unlisted companies need to know.

1. Employee Incentive Schemes: Key Provisions in Both Instruments

Before diving into the differences, it's essential to understand what remains the same. Both the 2025 Draft Instrument and Class Order provide relief for unlisted companies offering employee incentive schemes. The following elements are consistent across both instruments:

• Eligible Securities: Companies can offer fully paid voting ordinary shares, options, and incentive rights as part of an employee incentive scheme.
• Eligible Participants: Employees, including full-time, part-time, executive and non-executive directors, contractors, and casual employees, are eligible to receive offers under these schemes.
• Trustee Involvement: Companies can appoint trustees to manage shares on behalf of employees, provided they adhere to specific limitations, including restrictions on voting rights.
• Disclosure Exemptions: Offers made under these schemes are exempt from disclosure obligations under Parts 6D.2, 6D.3, and 7.9 of the Corporations Act.
• Financial Services Licensing Relief: Companies do not need an Australian Financial Services License (AFSL) when providing general advice or dealing in shares related to an employee incentive scheme.
• Restrictions on Contribution Plans and Loans: Both instruments prohibit employee contribution plans and prevent companies from offering loans to employees for acquiring shares.

While these provisions remain unchanged, the 2025 Draft Instrument introduces several key differences that reduce compliance burdens for unlisted companies.

2. Key Differences Between the 2025 Draft Instrument and the Class Order

a. Extended Regulatory Relief 

Class Order was set to expire on April 1, 2024, meaning that unlisted companies had a limited timeframe to make offers under this framework. The 2025 Draft Instrument extends the relief, allowing companies to continue offering employee incentives without concern for an approaching deadline. ASIC has indicated that the 2025 Draft Instrument will have an effective period of 5 years.

b. Removal of ASIC Notification Requirements

Under the Class Order, companies relying on the exemption were required to submit a “Notice of Reliance” to ASIC within one month of making an offer. The 2025 Draft Instrument eliminates this requirement, removing administrative burdens and ensuring companies can proceed with their employee incentive schemes without additional reporting.

c. Elimination of Financial Disclosure Obligations

One of the most significant changes is the removal of stringent financial disclosure obligations. Under the Class Order, companies were required to provide:

• An annual report
• A directors' solvency resolution (confirming the company could pay its debts)
• A directors' valuation resolution (issued within the past 12 months to assess share value)

The 2025 Draft Instrument removes these obligations, meaning unlisted companies are no longer required to prepare and distribute these financial documents to employees participating in incentive schemes.

d. Removal of the $5,000 Annual Cap Per Employee

The Class Order placed a restriction that no employee could receive more than $5,000 worth of shares in any 12-month period. The 2025 Draft Instrument removes this cap, allowing companies to provide more substantial equity incentives to employees without limitation.

e. Simplified Compliance for Trustees

While both instruments restrict a trustee’s ability to vote on held shares at their discretion, the 2025 Draft Instrument provides more flexibility in how trustees administer employee incentive schemes. The new instrument also clarifies that trustees cannot charge administrative fees directly to participants beyond reasonable expenses such as brokerage or taxes.

f. Expansion of Small-Scale Offer Exemptions

The new instrument modifies Section 708 of the Corporations Act 2001 (Cth) (Corporations Act) by expanding the small-scale offer exemption. Previously, under the Class Order, small-scale offers could not exceed a 20% limit of a company’s total issued capital over three years. The updated provisions offer more flexibility in structuring employee incentive plans without triggering disclosure obligations.

3. What These Changes Mean for Unlisted Companies

For companies considering employee incentive schemes, these regulatory changes introduce several key benefits:

1. Reduced Compliance Burdens – Companies no longer need to file notices with ASIC, prepare solvency resolutions, or maintain share valuation records.
2. Greater Flexibility in Employee Compensation – With no $5,000 cap per employee, businesses can structure incentive packages based on their needs rather than arbitrary limits.
3. Streamlined Trustee Administration – Trustees have fewer reporting obligations, making it easier for companies to manage employee-held shares.
4. Long-Term Stability – The indefinite extension of these exemptions provides long-term certainty, ensuring businesses can continue offering incentives without regulatory disruption.

4. Potential Risks and Considerations

While these changes simplify regulatory requirements, companies should remain cautious of the following:

1. Fair Valuation of Shares: Without mandatory valuation resolutions, companies must ensure that shares offered to employees are valued fairly to avoid potential disputes.
2. Tax Implications: While ASIC provides relief from disclosure and licensing requirements, companies must still consider tax implications for employees receiving shares or options.
3. Employee Expectations: With the removal of restrictions, companies may need to clearly communicate the terms of their employee incentive schemes to avoid misunderstandings about the value and liquidity of offered shares.

5. Conclusion

The 2025 ASIC Draft Instrument brings much-needed updates to the regulation of employee incentive schemes for unlisted companies. By extending relief, removing financial reporting requirements, and eliminating outdated restrictions, the new instrument allows companies to more easily implement employee incentive plans. However, companies should remain mindful of fair valuation practices and tax implications when structuring their schemes.

For unlisted companies looking to attract and retain talent through equity incentives, these changes represent a significant step forward in reducing compliance costs and improving flexibility in how they reward employees.

Would you like to explore how your company can take advantage of these changes? Contact Liam McLagan and Adam Versaci from Jackson McDonald.