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Rule 701

SEC registration exemption used for equity plans at privately held companies. State corporate and securities law exemptions for private companies are often conditioned on meeting the requirements of SEC Rule 701, or are directly modeled after it. Under Rule 701, a company can sell up to $5 million, in any consecutive 12-month period, up to 15% of the outstanding securities of that class it is offering to employees (greater than 15% for amounts up to $1 million). The company must give employees a copy of the written plan under which it will deliver securities for amounts up to $5 million. If this dollar amount is exceeded, then the company must provide a summary of the material terms of the plan, information about the risks, and financial statements meeting the Regulation A requirements.

For the application of this rule to selling stock after an IPO, see an FAQ elsewhere on this website.

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