Everyone else blogged on this last week, so I thought I would write today to catch those on vacation last week. On July 18, 2018, the SEC announced that it had unanimously approved an amendment to Rule 701(e). You will recall that Rule 701 allows private companies to “offer for sale” securities under a compensatory benefit plan without running afoul of SEC registration requirements. Congress had mandated that the SEC adopt this liberalization in the “Economic Growth, Regulatory Relief, and Consumer Protection Act” signed by the President in May.

Under the amendment, private companies that issue stock-based compensation do not need to provide financial statements, risk factors, and other disclosures to participants until the company has “sold” an aggregate of $10 million in securities during a 12-month period. Previously, that threshold was $5 million. The full text of the amendment is below.

(e) Disclosure that must be provided. The issuer must deliver to investors a copy of the compensatory benefit plan or the contract, as applicable. In addition, if the aggregate sales price or amount of securities sold during any consecutive 12-month period exceeds $5 million $10 million, the issuer must deliver the following disclosure to investors a reasonable period of time before the date of sale.

The Economic Growth, Regulatory Relief, and Consumer Protection also requires the SEC to index this limit for inflation every five years.

The amendment will become effective immediately upon publication in the Federal Register; companies that have already started an offering in the current 12-month period will be able to apply the new threshold.