Registration Exemption

SEC Final Rules to Modernize Offerings Pursuant to Compensatory Arrangements

By | 08/01/2018 | 2:32 am ET

The Securities and Exchange Commission (SEC), proposed a rule change in July to amend Securities Act Rule 701(e). The rule creates a registration exemption for securities issued by non-reporting companies pursuant to compensatory arrangements. The SEC amendments were required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, and increased the threshold where issuers are required to disclose additional information from $5 million to $10 million of the aggregate sales price or amount of securities sold.

Under the new registration exemption and amendment, an issuer will be allowed to have an aggregate sales price or amount of securities sold of $10 million within a consecutive 12-month period before they are required to provide additional disclosure to their investors. Under Rule 701, additional disclosures typically include financial statements. After their aggregate sales exceed $10 million, then the issuer will be subject to the additional disclosure requirements that Rule 701(e) mandates. Beyond this amendment, Rule 701(e) will continue to operate the same.

The proposed amendments should ease regulatory burdens in regards to disclosure requirements for non-reporting companies. The SEC estimates that this amendment will decrease professional costs associated with Rule 701 by $480,000.

After a 60-day public comment period, the rules have been finalized and published in the Federal Register.

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