It has become relatively common for local entities, normally those forming part of a foreign listed group, to encourage employee participation in the group’s growth, by offering them shares in a group entity. 

The issue of shares to the public in Malta, and an offer to employees is deemed an offer to the public, is regulated, and there are a number of considerations that will need to be taken into consideration by an issuer prior to launching such a Scheme.

Need for a Prospectus?

An entity (whether foreign or local) offering shares to the public in Malta can only make such offer pursuant to a prospectus[1] that will need to adhere to local laws including approval by relevant competent authorities[2]. 

However, the offering of shares to existing or former employees or directors by an issuer in Malta or an affiliated undertaking, may be exempt from issuing a prospectus.  Whilst the Prospectus Regulation[3] (‘PR’) applies irrespective of where the issuer is registered or shares are listed, that is whether within the EU/EEA or otherwise, the Companies Act [4] (‘CA’) applies the exemption where the issuer has its head office or registered office within the EU/EEA or in any other third country provided the shares are traded on a regulated market or other market with respect to which the EU has adopted an equivalence decision.  There is thus a discrepancy between the PR and the CA.  If relevant provisions in the PR are determined to have direct effect, the PR shall apply[5].

When relying on the aforementioned exemption, a document (instead of a prospectus) containing information on the number and nature of securities and the reasons for and details of the offer[6]  is to be made available to prospective investors.

There are other exemptions exempting an issuer of a Scheme from the requirement of a prospectus, that may apply.  These largely depend on the number of investors targeted[7], the amount taken up by an employee[8], the denomination of units issued[9] or the aggregate amount of securities offered[10].

Does the promotion of a Scheme amount to an investment service?

Pursuant to the Investment Services Act[11] (‘ISA’), the reception and transmission of orders and the provision of investment advice are licensable activities.     Thus care will need to be taken in the manner shares are promoted to the employees, and how employees subscribe to such shares.  An entity involved in whatever way in promoting shares to employees will need to analyse whether its role in any such promotion amounts to the provision of an investment service[12]. 

A company providing investment services consisting exclusively in the administration of employee-participation schemes[13] is exempt from obtaining an investment licence.  Thus, companies may be able to rely on such exemption where the services involved are administrative in nature[14].

Participation of local as opposed to foreign entities in promoting a Scheme

The above rules of course apply within the ambit of a Scheme offered to employees in Malta. 

Pursuant to the ISA, investment activities are licensable when carried out in or from within Malta.  Thus there is a likelihood that certain activities carried out by entities participating in promoting the Scheme from abroad, are not caught up by any of the above regulations.  This will particularly be the case where such foreign entities do not have a presence in Malta, and do not actively approach eligible employees to participate in the Scheme.

Are documents promoting the Scheme investment advertisements?

The ISA provides that no person may issue or cause to be issued an investment advertisement in or from within Malta unless this is approved by a license holder. 

Entities will therefore need to ensure that any document issued by them explaining or promoting the Scheme will not constitute an investment advertisement, as it will otherwise need to be approved in terms of guidelines issued by the local competent authority for the purpose.

Investment advertisements are any form or medium of marketing activity or communication disseminated to the public by means of all types of media, other than a prospectus, which promotes the purchase or procurement of an investment service or instrument[15].   A prospectus is any prospectus, notice, circular, advertisement or other invitation, offering to the public for subscription any shares or debentures of a company[16].

There is overlap between the two.  An issue may arise in so far as concerns entities exempt from publishing a prospectus.  Whilst the law requires that they publish a document containing information and details of the offer[17], ESMA recommends that documents that have not been approved by a competent authority pursuant to the PR should not be termed as a prospectus as this may be misleading[18].  Whilst such document is not a prospectus in terms of the PR as it is not approved by a competent authority, neither should it be regarded as an investment advertisement, as this is required by law as a substitute to the prospectus, and is the main information document on the basis of which an employee can determine whether to invest in a scheme or otherwise.

Any other document issued in relation to the Scheme will however in all probability be viewed as an advertisement, with the consequence that it will need to comply with local rules on advertisements.

Note: this document does not constitute advice, and is not exhaustive.

[1] Section 89, Companies Act, Chapter 386 of the Laws of Malta

[2] Section 12 (1) Financial Markets Act, Chapter 345 of the laws of Malta

[3] Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017, article 1(4)(i)

[4] Section 89 (e)

[5] Preamble 17 of the PR in fact states that ‘to ensure equal access to employee-share schemes for all directors and employees independently of whether their employer is established in or outside the Union, no equivalence decision of third country markets should be required any longer, as long as such information document is made available.’

[6] Article 1(4)(i) of the PR, section 89(e) CA

[7] Where the offer is made to fewer than 150 persons per member state, article 4 (b) of the PR, section 12A(2) FMA, section 2(3)(b)(ii) CA

[8] An investor acquires at least €100,000 worth of securities, article 4(d) PR, section 12A(2) FMA, section 2(3)(b) (iii) CA

[9] Where a unit is denominated to at least €100,000, Section 4(c) PR, article 12A(2) FMA, section 2(3)(b)(iv) CA

[10] Where the offer is less than one million in the Union over a twelve month period, article 1(3) of the PR, section 12A FMA

[11] Chapter 370 of the Laws of Malta

[12] An entity should therefore be careful as to how, for example, it accepts and executes applications for subscribing to the Scheme, it provides any advice to its employees to encourage participation in the Scheme etc

[13] Section 3(1) (g) Legal Notice 370.02, Investment Services Act (Exemption) Regulations.  The exemption also applies where together with such service the same entity provides investment services to companies within the group (section3 (1)(bb) Legal Notice 370.02, Investment Services Act (Exemption) Regulations

[14] The exemption is not automatic but is subject to a determination in writing by the competent authority

[15] Section 2 ISA.  In terms of the ISA shares in companies and other securities equivalent to shares in companies amount to instruments; likewise bonds and other securitized debts and any other securities giving the right to acquire or sell any such transferable securities

[16] Section 2 CA

[17] See footnote 6

[18] Q14.2, Questions and Answers on the Prospectus Regulation, ESMA/2019/ESMA31-62-1258, last updated on 27 July 2021.  ESMA further recommends that if the term is used for documents that have not been duly approved pursuant to the PR, the document should indicate as much