SEC increases Rule 701 disclosure threshold and issues concept release on updating compensatory offering rules

The SEC recently amended Securities Act Rule 701, which provides a registration exemption for securities sold by non-reporting companies to their employees and other covered persons under compensatory arrangements. The amendment revises Rule 701(e) to increase from US$5 million to US$10 million the limit on the aggregate sales price or amount of securities a company may sell during any consecutive 12-month period without having to deliver additional disclosure to offerees. The amendment became effective on July 23. Companies may rely on the increased disclosure threshold for offerings that were ongoing when the amendment became effective, as well as for offerings they initiate after the effective date.

On the same day it published the Rule 701(e) amendment, the SEC issued a concept release soliciting public comment on ways in which the SEC might modernize its rules governing compensatory securities offerings. SEC Chairman Jay Clayton has indicated that the concept release represents an effort to ensure that the regulatory framework for compensatory offerings reflects recent changes in the labor markets. Among those changes, Chairman Clayton highlighted “the development of both new compensatory instruments and novel worker relationships – often referred to as the ‘gig economy.’” The SEC requests comment by September 24 on potential modifications to Rule 701 and to Form S-8, which is the Securities Act registration statement form used by reporting companies for compensatory offerings.

To learn more about the Rule 701 amendment and the concept release, download "SEC increases Rule 701 disclosure threshold and issues concept release on updating compensatory offering rules."


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