Share purchase by employee

Querist : Anonymous (Querist) 01 June 2020 This query is : Resolved
Employee are willing to purchase less than 10 shares every month of their own organisation as long term investor and not for trading. Also, ready to give declaration of the purchased quantity. But, the company management is prohibiting for purchasing the shares of the company, directly or indirectly.

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Rajendra K Goyal (Expert) 01 June 2020
Why the Company is refusing? You have not mentioned the reason.

Whether company has issued some circular in this regard?

A large no. of Companies issue shares to its employees / officers under ESOP Scheme (Employees stock option Plan). SBI, Wipro, Infosys are some examples.

It is general opinion that employees having shares of own company, work with more sincerity, have feeling of working with own company.

Studies have found that ESOPs are better than 401(k) plan.

401(k) plan is a retirement savings account that allows an employee to divert a portion of their salary into long-term investments. The employer may match the employee's contribution up to a limit.

Raj Kumar Makkad (Expert) 01 June 2020
It is not the legal right of an employee to purchase shares of his employer company rather it is the prerogative of the employer to offer such facility/permission to its employees. If this is the policy of your company not to allow its employees to purchase its shares, you are bound to follow it. You may purchse the shares in the name of any other member of your family.

Dr J C Vashista (Expert) 02 June 2020
I agree with experts Mr. Rajendra K Goyal and Mr. Raj Kumar Makkad.
Whether the company is registered/ listed / public / private limited or unlimited ?
ESOP is beneficial scheme for both the employer as well as employees, what is the reason / pretext of refusal /prohibiting employees purchasing such a small quantity of shares as stated by the management of company ?

Querist : Anonymous (Querist) 02 June 2020
Sir

Thanks for your kind advice

Company shows reasons that it is prohibited as per the provisions of the SEBI (Prohibition of Insider Trading) Regulations 2015 and upon request not showing proper provisions. But, threatens for strict actions by SEBI only.

Raj Kumar Makkad (Expert) 02 June 2020
Insider trading is a term subject to many definitions and connotations and it encompasses both legal and prohibited activity. Insider trading takes place legally every day, when corporate insiders – officers, directors or employees – buy or sell stock in their own companies within the confines of company policy and the regulations governing this trading. In simple terms ‘insider trading’ buying or selling a security, in breach of a fiduciary duty or other relationship of trust , and confidence , while in possession of material , nonpublic information about the security.

Thus , in nutshell , insider trading is the buying , selling or dealing in securities of a listed company by a director , member of management , employee of the company , or by any other person such as internal auditor , advisor , consultant , analyst etc, who has knowledge of material inside information which is not available to general public. So employer is within his legal right to prohibit its employees to purchase its shares.

Rajendra K Goyal (Expert) 02 June 2020

It seems your concern is taking these precautions so that SEBI rules on inside trading are not violated in any respect. If you have access to the company information which may affect performance / market price of company shares, you should avoid such trading as safeguard from any charge of inside trading charge on the company.
SEBI has put certain restriction on the employees / officers / directors who has access to the policy information related with above to check inside trading. Please go through the SEBI guidelines in this respect.
Designated employees are not allowed to do trading during the following process of any company to have a check on inside trading.
_ Declaration of financial results.
_ Declaration of dividends.
_ Issue of securities by way of public/right/bonus etc.
_ Major expansion plans or execution of new projects.
_ Amalgamation, mergers, takeovers and buy back.
_ Disposal of whole or substantial part of the undertaking.
_ Any changes in plans, policies or operation of the company
Regulation 2(e) defines an 'insider' as a person connected or deemed to be connected and who is reasonably expected to have access to any unpublished price sensitive information in respect of securities [i.e. shares, debentures etc.] of a company, or who has received or has had access to such unpublished information. The directors, officer, employers of the company, & persons involving a professional or business relationship [like CA's lawyers etc.] are connected person as per regulations 2 (c). The definition of person would include a company, association or body of individuals whether incorporated or not. Apart from connected persons, the regulation also provides for 'deemed to be connected persons' who generally include intermediaries like an investment company, Trustee Company etc. Also included in the list is subsidiary of a company and relatives of connected persons etc.

Querist : Anonymous (Querist) 02 June 2020
Sir
As buying less than 10 shares every month on long term basis and not selling is falling under the definition of trading.
Are long term investment by employee prohibited, if yes, logical ?

Rajendra K Goyal (Expert) 02 June 2020
This may not, it seems company is taking extra precautions against any inquiry from SEBI on inside trading. This may have long term effect.

You can seek information from SEBI through RTI.

Querist : Anonymous (Querist) 02 June 2020
thanks a ton for reply of queries

Rajendra K Goyal (Expert) 02 June 2020
You are welcome, may revert in case of any further question on the query.

Raj Kumar Makkad (Expert) 02 June 2020
Question is not of 10 or more shares per day or per month. Issue is there are specific regulations which clearly bar an employee to trade in the shares of the employer company so principally, you have no legal right to violate these regulations.

Raj Kumar Makkad (Expert) 02 June 2020
You are otherwise most welcome at any moment in case find any legal requirement.