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Dodd-Frank

SEC Raises Threshold for Additional Disclosures Under Rule 701

by   |   July 18, 2018

Rule 701 under the Securities Act of 1933 provides an exemption from registration for securities issued by non-reporting companies pursuant to compensatory arrangements. The exemption covers securities offered or sold under a plan or agreement between a non-reporting company and the company’s employees, officers, directors, partners, trustees, consultants, and advisors.

The Economic Growth, Regulatory Relief, and Consumer Protection Act requires the SEC to amend Rule 701(e) to increase from $5 million to $10 million the aggregate sales price or amount of securities sold during any consecutive 12-month period in excess of which the issuer is required to deliver additional disclosures to investors. The SEC has taken formal action to amend Rule 701(e) in the manner prescribed by the statute.

As amended, Rule 701(e) will otherwise continue to operate in the same manner as it currently does. Specifically, the additional disclosures required by Rule 701(e) will not be required for sales up to $10 million in the 12-month period. If aggregate sales during that period exceed $10 million, however, the issuer must deliver those additional disclosures a reasonable period of time before the date of sale to all investors in the 12-month period. Issuers that have commenced an offering in the current 12-month period will be able to apply the new $10 million disclosure threshold immediately upon effectiveness of the amendment.

The new rule is effective upon publication in the Federal Register.