Reforms to employee share schemes from 1 October 2022

Changes to the Corporations Act 2001 (Cth) (CA), contained within Schedule 4 to the Treasury Law Amendment (Cost of Living Support and Other Measures) Act 2022 (Cth) (Act), will mean employees can more easily participate in employee share schemes (ESS).  This could help start-ups and cash poor businesses attract and retain employees who themselves will be able to share in the growth and success of their employers.[1]  The Act provides for this by removing the standard regulatory requirements for business offering shares and financial products to retail clients under the CA in certain circumstances.[2]

What is an ESS?

Section 4.3 of the Act defines an ESS as:

“An employee share scheme is an arrangement put in place by a business to reward people who contribute to the business, namely directors, employees and service providers (referred to as ‘participants’), with shares or other interests in the business in exchange for their labour”.

People who receive the primary benefit from an are defined as the ‘primary participant’.  The benefit under the ESS may also be transferred to a ‘related person’ of the ‘primary participant’, being a spouse, parent, child or sibling or company controlled by any of these classes of persons.[3]

In effect, an ESS transfers an interest in an employer’s company to an employee or related person as a form of remuneration for work performed by that employee.

Removal of red tape

The Act provides for the removal of four (4) barriers to an employer and employee participating in an ESS, as follows:

  • removal of the requirement to have an Australia financial services licence to:
  • operate an ESS; and
  • provide general financial advice in relation to an ESS;[4] and
  • lifting of restrictions surrounding advertising and hawking securities and financial products to the extent that they relate to an ESS;[5] and
  • removal of existing disclosure requirements under the CA to the extent that they relate to an ESS.[6]

The effect of the above is that a less sophisticated employer, without the capacity to seek comprehensive financial and/or legal advice, will not be barred from issuing an ESS to employees on the basis of their non-expertise in financial products and services.  It follows also that employers may be more forthright in their advertisement of any proposed ESS.  Further, an employer may not be obliged to complete onerous and costly disclosure requirements of facts and circumstances surrounding their proposed ESS.

Notably however the changes do not apply where participation involves paying for their securities or borrowing to participate in the scheme.[7]

When will relief be offered?

Whether or not a company will be entitled to the above discussed relief will depend upon various factors relating to both the company’s structure and the form of a proposed ESS.  It can be quite a complicated endeavour to determine whether relief is applicable in particular scenarios.  What is consistent across a range of common company structures and forms of proposed ESS, however, is that the scheme needs to be in relation to either:

  • a fully paid share; or
  • an option to acquire a fully paid share.

An option to acquire shares may be attached to an incentive right in relation to such option.[8]  That is to say that the option to acquire shares will become exercisable upon certain conditions being met, often designed to incentivise performance.

What ESS offers can be made to employees?

Some technicality remains as to form and how offers can be made.  The requirements arising differ depending on whether there are offers for monetary consideration (payment) or not.  That is, whether the employee has to pay for the interest in the employer company under the ESS.  Again, determining the technical obligations of an offer can be a complicated endeavour but some general rules can be drawn from the legislation:

  • the person receiving the benefit of the ESS is an eligible participant as described above;[9]
  • all offers must be expressed to be made under Part 7.12 Division 1A of the CA;[10] and
  • if the ESS is to be facilitated by trust, such trust must adhere to stringent record keeping requirements and it’s deed must only provide for the managing of the ESS – no other powers can be conferred upon the trustee.[11]

Where an offer to participate in an ESS involves no payment of monetary consideration the interest attached to the ESS can only be an option or incentive rights to acquire shares upon certain conditions being met.[12]

Where an offer to participate in an ESS involves payment of monetary consideration there are more stringent requirements to be met.  For example:

  • the issuing company may not issue more than a specified percentage of their issued capital (5% and 20% for listed bodies and unlisted body corporates respectively);[13]
  • a comprehensive contribution plan in accordance with various regulations needs to be put in place;[14]
  • loan agreements between employer and employee to facilitate participation in an ESS have strict rules;[15]
  • disclosure obligations are not fully eliminated;[16] and
  • a monetary cap of $30,000 applies in respect of any ESS.[17]


Whilst some restrictions still applies to the form of offer to participate in an ESS, the Act sees substantial lessening of the red tape required to engage in such offering.  It is now simpler and less expensive for companies to offer additional forms of remuneration, in the form of shares and options, to their employees and to enjoy the benefits of such schemes.

Links and further references

Related articles

Director’s right to inspect company records

Employee Share Scheme (ESS) offering an option


Corporations Act 2001 (Cth)

Treasury Law Amendment (Cost of Living Support and Other Measures) Act 2022 (Cth)

Treasury Law Amendment (Cost of Living Support and Other Measures) Bill 2022 Explanatory Memorandum

Further information

If you need advice on employee share schemes, contact us for a confidential and obligation free discussion:

Malcolm BurrowsMalcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.

Legal Practice Director

Telephone: (07) 3221 0013 (Preferred)

Mobile: 0419 726 535





This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.




[1]     Treasury Law Amendment (Cost of Living Support and Other Measures) Bill 2022 Explanatory Memorandum at 4.4.

[2]     Ibid at 4.14.

[3]     Ibid s 1100L(1)(b)(i) and (ii).

[4]     Ibid s 1100ZC(7).

[5]     Ibid s 1100ZC(8).

[6]     Ibid s 1100ZC(2).

[7]      Ibid at 4.12.

[8]     Ibid s 1100M(1)(h).

[9]     Ibid s 1100L and 1100M.

[10]    Ibid s 1100N.

[11]    Ibid s 1100S(2).

[12]    Ibid s 1100P(a) and (b).

[13]    Ibid s 1100V(2)(a) and (b).

[14]    Ibid s 1100T.

[15]    Ibid s 1100U.

[16]    Ibid s 1100X and 1100Y.

[17]    Ibid s 1100ZA.


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