SEC Adopts Final Rules to Modernize Offerings Pursuant to Compensatory Arrangements

On July 18th, the SEC issued final rules to amend the Securities Act Rule 701. Rule 701 provides an exemption from registration for securities issued by non-reporting companies pursuant to compensatory arrangements. The amendment increases the threshold of aggregate sales price or amount of securities sold in excess of which the issuer is required to deliver additional disclosures from $5 million to $10 million, in accordance with the Economic Growth, Regulatory Relief, and Consumer Protection Act.

This amendment is effective once the Adopting Release is published in the Federal Register.

Additionally, the commission is seeking public comment on ways to modernize rules pertaining to compensatory arrangements. These rules have not been altered by the Commission since 1999, and there have been significant changes in the types of compensatory offerings and the composition of the work force. Equity compensation can be an important aspect of the employment relationship, as this approach aligns the incentives of the employees with that of the enterprise while promoting recruitment and retention. Under Securities Act Rule 701, non-reporting companies can sell their securities to their employees without registering the offer and sale of said securities. In addition, Securities Act Form S-8 provides a simplified registration form for companies to use when issuing securities as part of a employee stock purchase plan.

The SEC is interested in ways of updating these rules to provide better investor protections. In addition, there is interest in studying how the internet platform can offer workers the opportunity to sell goods and services and if the Rule 701 eligibility should extended to these relationships. The Commission is also seeking input on if the disclosure and timing requirements of Rule 701(e) should be further amended and if the use of Form S-8 should be further streamlined.

The public comment period for these matters concerning modernizing compensatory arrangements will be effective 60 days after the Concept Release’s publication in the Federal Register. You can submit comments using the form available on the SEC’s website or by e-mailing with the reference number (S7-18-18) in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, please remember to include reference number S7-18-18.


SEC Adopts Final Rules and Solicits Public Comment on Ways to Modernize Offerings Pursuant to Compensatory Arrangements (
Concept Release on Compensatory Securities Offerings and Sales (