Employee Equity Compensation Under Rule 701.
Rule 701 allows companies to offer securities to their employees and certain other persons without the need to file a registration statement. Specifically, non-reporting or private companies may offer and sell securities under a written compensatory benefit plan or contract for their employees, directors, general partners, trustees, and officers, as well as consultants and advisors who are natural persons and provide bona fide services outside of a capital-raising transaction.[1] A “compensatory benefit plan” is defined as “any purchase, savings, option, bonus, stock appreciation, profit sharing, thrift, incentive, deferred compensation, pension, or similar plan.”[2] The SEC’s policy consideration behind adopting this rule was that it would be an unreasonable burden to require private companies, many of which are small businesses, to incur the expenses and disclosure obligations of public companies when they offer securities to their employees for compensatory, rather than capital-raising, purposes.… Read the rest