The Economic Growth, Regulatory Relief and Consumer Protection Act Amends a Key Provision of Rule 701
By: Alexandria Kane
The Economic Growth Regulatory Relief and Consumer Protection Act, which was signed into law by President Trump on May 24, 2018, directs the US Securities and Exchange Commission (SEC) to amend a significant provision of Rule 701. Rule 701 is the federal exemption from registration that most US private companies rely on when granting or selling equity based compensation to their employees, consultants and advisors. Rule 701(e) requires certain heightened disclosure requirements, including financial statements of the issuer prepared in accordance with generally accepted accounting principles (GAAP), risk factors and a summary of material terms of the plan, when the aggregate sale price or amount of securities sold or granted during any consecutive 12 month period exceed $5 million. These items must be provided in a reasonable time before the date of any sale or grant. This $5 million threshold had not been revised since 1999 and, since such date, companies have been staying private longer and growing to significantly higher valuations. (more…)