Rule 701 Report

Rule 701 of the Securities Act of 1933 allows private companies to issue securities as part of the compensation to employees and officers without having to comply with federal securities registration requirements. 

There are special disclosure requirements that are triggered once the value of the equity awards under Rule 701 exceeds $10M during any consecutive 12-month period. Contact us at support@carta.com to use Carta disclosure feature. See below for more information.

Update: The Economic Growth, Regulatory Relief, and Consumer Protection Act mandated (among other items) that the SEC revise Rule 701(e) to increase the aggregate sales or offering price of securities sold during a consecutive 12-month period from $5M to $10M. This revised threshold means fewer companies will be subject to the additional disclosure requirements, thus saving them time and money. The update took effect on July 23, 2018.

Your company must meet one of the following requirements to pass Rule 701:

  • The dollar value of your Rule 701 shares is less than $1,000,000.
  • The quantity of your Rule 701 shares must be less than 15% of the outstanding shares (15% of outstanding shares amount).
  • The dollar value of your Rule 701 shares is less than 15% of your company assets.

The 12 month period can be defined in two ways:

  • The company can select a fixed 12-month period, but must be consistent with using that set time frame, or
  • The company can adopt any rolling 12-month period.
  • Once the company chooses which 12-month period type they want to use, they can't switch between the two.

Refer to this article, question 271.06 for more information.

Note: Usually the former is done to match the company's fiscal year, but will always have to use that schedule.


Methodology

  • Carta uses conservative methods for calculating Rule 701 compliance.
  • We do not include canceled or expired option grants in our Rule 701 check.
  • We only include the stock that was originally issued under Rule 701; transferred stock certificates are excluded.
  • All other securities are included.

Rule 701 Report

To export the company's Rule 701 navigate to Capitalization and click Reports. Then, scroll down to compliance to 'Reports' then 'Rule 701 analysis worksheet.