What is Rule 701?
Rule 701 is a safe harbor exemption created by the Securities and Exchange Commission (SEC) that allows companies to issue stock options without the time and expense of registration of the stock under the Securities Act. Rule 701 only applies to private companies.
Who can use Rule 701?
Rule 701 exempts certain sales of securities made to compensate employees, consultants and advisors. This exemption is not available to Exchange Act reporting companies. A company can sell at least $1 million of securities under this exemption, regardless of its size.
Does Rule 701 preempt state laws?
Rule 701 does not preempt state law and accordingly, in addition to complying with Rule 701, the company also must comply with any applicable state law relating to the issuance.
What is the Rule 144 date?
The Rule 144 “holding period” for the resale of restricted securities is six months from the date of sale for securities issued by a reporting issuer or one year from the date of sale for securities issued by a non-reporting issuer.
What are Reg S securities?
Regulation S, which was adopted by the Securities and Exchange Commission (the “SEC”) in 1990,1 provides that offers and sales of securities that occur outside of the United States are exempt from the registration requirements of Section 5 of the Securities Act of 1933 (the “Securities Act”).
What is a 701 Disclosure?
New Financial Disclosure Requirements Generally, Rule 701 requires that companies that are required to provide financial and other disclosure provide financial statements for the two most recently completed fiscal years or the period during which they have been in existence if it is shorter.
How much can you raise with Reg D?
Regulation D lets you raise private capital with securities (such as equity shares) that are exempt from SEC registration. Rule 506 is beloved by real estate syndicators and other securities issuers for good reason. Under this rule, you: Can raise an unlimited amount of money.
Who can buy Reg S bonds?
Qualified Institutional Buyers
Under the Rule 144A, Qualified Institutional Buyers (QIBs) can trade debt securities without registration and review by the Securities and Exchange Commission (SEC). The Reg S bond type is available for offers and trades of securities outside of the U.S.A. to U.S. and non-U.S. QIBs.
What is rule 701 and how does it apply to you?
Rule 701 only applies to private companies. To qualify under the exemption, the company must issue securities pursuant to a written compensatory benefit plan (such as a stock option plan) only to employees, directors, consultants and advisors.
What is rule 701 of the Securities Act of 1933?
Rule 701 comes from the Securities Act of 1933. It’s a federal exemption that frees companies from registering stock option grants and rewards for performance. No forms need to be filed with the SEC, nor do fees have to be paid. But there are conditions and limitations that come with awarding stock options under Rule 701.
What are special disclosure requirements under Rule 701?
If the value of the equity goes over $5 million, 15 percent of the issuer’s total assets, or 15 percent of the outstanding securities in the class in any consecutive 12-month period, special disclosure requirements are triggered. Rule 701 is only available to private companies; public companies cannot participate.
What are the most common mistakes companies make with rule 701?
A common mistake is offering compensation to those who are ineligible under Rule 701. Consultants and advisors who maintain the market for the securities of the company are not allowed to receive stock as compensation.