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Legal & Compliance, LLC
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Legal & Compliance, LLC is a Corporate and Securities Law Firm
Legal & Compliance, LLC is a Corporate and Securities Law Firm

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The SEC seeks comment on the timing and manner of delivery of Rule 701 disclosures, including issues of confidentiality of the disclosure materials.
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Disclosures under Rule 701 must be delivered within a reasonable period of time before the date of sale. The rule does not specify the manner of delivery of the disclosure. Accordingly, a company must carefully monitor issuances and ensure that disclosure goes out to all recipients of Rule 701 securities prior to actually reaching the threshold.
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Although the SEC has amended Rule 701(e) to increase the threshold for providing additional disclosures to employees from aggregate sales of $5,000,000 during any 12-month period to $10,000,000, it has not amended how the rule operates. In particular, the rule requires that all investors, including prior investors, receive disclosures as soon as the aggregate amount of sales reaches the $10,000,000 mark or the exemption is lost.
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Despite the non-traditional relationship, the company would have the same motivations to provide equity compensation including cash preservation, aligning company and workforce interests and facilitating recruitment and retention.
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Individuals can now have relationships with multiple companies and careers based on a particular service as opposed to a particular employer, such as both Uber and Lyft. These individuals may not fit within the parameters of an “employee” or consultant or advisor for purposes of Rule 701 eligibility. Despite the non-traditional relationship, the company would have the same motivations to provide equity compensation including cash preservation, aligning company and workforce interests and facilitating recruitment and retention.
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With the rise in technology and the Internet, there has been the concurrent increase in new and different types of employment relationships including short-term, part-time or freelance arrangements. Huge companies have developed using this “gig economy” structure including in areas of ride sharing, lodging, food delivery, household repairs, dog sitting, marketing, web development, logo design, and tech support as just a few examples.
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Rule 701 allows for issuances to employees, directors, officers, general partners, trustees, or consultants and advisors under written compensatory plans. Furthermore, under the rule consultants and advisors may only receive securities under the exemption if: (i) they are a natural person (i.e., no entities); (ii) they provide bona fide services to the issuer, its parent or subsidiaries; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market in the company’s securities.
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Since Rule 701 and Form S-8 were last amended, forms of equity compensation have continued to evolve, and new types of contractual relationships between companies and the individuals who work for them have emerged.
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Since Rule 701 and Form S-8 were last amended, forms of equity compensation have continued to evolve, and new types of contractual relationships between companies and the individuals who work for them have emerged.
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