On March 6, 2026, the United States Securities and Exchange Commission (SEC) issued several new and revised Compliance and Disclosure Interpretations (C&DIs). Most of the C&DIs provide clarification on the requirements for exemptions from registration for offers and sales of securities pursuant to certain compensatory benefit plans under Rule 701 of the Securities Act of 1933, as amended (the Securities Act). The Rule 701 exemption is available for both private domestic companies and foreign private issuers issuing equity compensation to their employees, officers, directors, and certain consultants and advisers, under the Rule.
In addition, the SEC issued guidance related to EDGAR access codes in connection with corporate reorganizations, checkbox compliance for smaller reporting companies (SRCs), and the definition of “ineligible issuer” under Securities Act Rule 405.
Overview of the Rule 701
Rule 701 provides an exemption from the registration requirements of the Securities Act for non-reporting companies – that is, companies that are not required to file periodic reports with the SEC under the Securities Exchange Act of 1934 (Exchange Act) – for equity and equity awards issued under a written compensatory benefit plan or compensation agreement. Private companies, as well as foreign private issuers, typically rely on the exemption provided by Rule 701 for grants of equity awards to their service providers.
The exemption is subject to limits on the amount of securities that can be sold in any 12-month period, as well as a requirement that an issuer whose “sales” exceed $10 million in any consecutive 12-month period provide enhanced disclosure to award recipients within a reasonable period before the “sale.” This enhanced disclosure includes:
- A copy of the plan or agreement under which the equity awards are granted;
- A summary of material plan terms (or, if required by the Employee Retirement Security Act of 1974, a summary plan description);
- Information regarding the risks of investment in the company’s securities; and
- Specified financial statements prepared in accordance with US Generally Accepted Accounting Principles (GAAP) or IFRS (or reconciled to US GAAP).
What has changed
The new and revised Rule 701 C&DIs address 1) how to apply the $10 million threshold that triggers the enhanced disclosure requirement, 2) how options repriced within 12 months of a grant should count toward that threshold, and 3) how the Rule 701 limits apply in the context of multiyear grants, post-Exchange Act deregistration exercises, and mergers and acquisitions (M&A). The two new C&DIs – Questions 271.26 and 271.27 – clarify when enhanced disclosure must be provided to options recipients and the consequences of failing to do so, respectively. The revisions to the existing C&DIs are only to reflect the prior increase from $5 million to $10 million of the enhanced disclosure threshold under Rule 701. However, for context, the full scope of the SEC’s guidance related to the revised C&DIs is described below.
The new Rule 701 C&DIs
Question 271.26 clarifies which investors must receive enhanced disclosure, using a scenario involving options granted to employees over three consecutive 12-month periods. Under the guidance, enhanced disclosure to employees is triggered only for the 12-month consecutive period in which the value of the options granted (based on exercise price) and the aggregate sales price of additional securities sold in reliance on Rule 701 exceeds $10 million. In that circumstance, the company is required to provide the enhanced disclosure within a “reasonable period of time” before the exercise date of the options. Enhanced disclosure is not required for options recipients in the preceding or following consecutive 12-month periods in which the $10 million threshold is not exceeded.
Question 271.27 continues with the scenario and explains that failure to provide enhanced disclosure within a reasonable time before the date of sale would result in the loss of the Rule 701 registration exemption for all equity awards granted during the entire 12-month period in which the $10 million threshold was exceeded. Accordingly, companies are advised to carefully forecast grants of equity awards to ensure they comply with the enhanced disclosure requirements.
The revised Rule 701 C&DIs
Clarifications affecting stock option repricings
Question 271.10 is updated to reflect the $10 million threshold. Under Question 271.10, for stock options, the relevant “sale” value for purposes of calculating the $10 million threshold under Rule 701 is the exercise price of the stock options at the date of grant. If the company reprices an option downward within 12 months of the original grant, the company may exclude the value of the original grant but must count the repriced option as a new sale as of the repricing date in determining whether the $10 million threshold in any consecutive 12-month period is exceeded.
The scope of enhanced disclosure
Question 271.12, which provides that enhanced disclosure must be provided to all investors in a Rule 701 offering if the company believes that sales will exceed the threshold provided under Rule 701, has been updated to reflect the $10 million threshold.
Timing of enhanced disclosure for RSUs
Question 271.24, which clarifies that the “sale” date for a restricted stock unit (RSU) for Rule 701 purposes is the grant date – rather than the later settlement date – has been updated to reflect the $10 million threshold. When a company awards RSUs to employees that settle upon satisfaction of conditions based on length of service or company performance, and the company exceeds the $10 million threshold during the consecutive 12-month period in which the RSU is awarded, the company must provide enhanced disclosure to RSU recipients within a reasonable period of time before the date the RSU award is granted.
Financial reporting for foreign companies
Question 271.14 has been amended to increase the threshold to $10 million. Under Question 271.14, if a foreign company relying on Rule 701 exceeds the $10 million threshold in a consecutive 12-month period, it must provide financial statements dated within 180 days. This effectively means that the foreign company must make financial statements available on at least a quarterly basis to satisfy the enhanced disclosure requirement. This may create additional complexities for those companies with securities listed on foreign stock exchanges that do not require quarterly financial statements under their home country’s rules. This requirement may result in equity incentive compensation grants being made during those periods when current financial statements will be available for distribution to employees.
Calculating the $10 million threshold for M&A transactions
The SEC updates Question 271.23 to increase the Rule 701 threshold to $10 million. Question 271.23 advises that following a merger transaction, for purposes of determining whether the acquiring company has crossed the Rule 701(e) disclosure threshold in a consecutive 12-month period, the company must include equity sold, granted, or awarded by the target company in reliance on Rule 701 in that same period. Companies relying on the Rule 701 exemption that are engaging in acquisitions of other companies and are not already providing enhanced Rule 701 disclosures should consider this requirement as part of their diligence process.
Companies whose reporting requirements are suspended or terminated
Question 271.16 has also been updated to increase the threshold to $10 million. Under question 271.16, Rule 701 may be available for option exercises following deregistration for companies 1) whose Exchange Act reporting obligations have been suspended or terminated and 2) who have outstanding employee options with underlying shares that were previously registered under a Form S-8 registration statement and later deregistered. For purposes of determining whether the $10 million threshold is exceeded, the company must calculate the aggregate exercise price of such outstanding stock options during the relevant 12-month period. Any future grants of stock options or other equity incentives by the company after the suspension or termination of reporting obligations are calculated separately, and shares underlying the outstanding stock options are not included in determining whether the $10 million threshold is exceeded in any consecutive 12-month period.
If the aggregate exercise price of the outstanding options exceeds $10 million, the company is required to provide enhanced disclosure within a reasonable period of time before the options are exercised in order to rely on Rule 701 for the sale of the underlying shares. For future grants after deregistration, Rule 701 calculations begin on a clean-slate basis. This means that shares underlying outstanding options granted while the company was subject to Exchange Act reporting and registered on Form S-8 are excluded when measuring compliance with Rule 701 limits on sales and enhanced disclosure requirements following the suspension or termination of reporting obligations.
Other C&DIs
New Question 101.06
The SEC also introduced Question 101.06, which advises that a company that reorganized from a limited liability company to a C corporation would be able to use the same Central Index Key, or CIK, number to access the SEC’s EDGAR database.
New Question 102.06
The SEC indicates that the failure to check the SRC status box would not result in the loss of SRC status or the ability to use the SRC accommodations.
Revised Question 203.03
The SEC revises Question 203.03 to reverse its prior position and now provide that an “ineligible issuer” as defined under Securities Act Rule 405 would not include an issuer, or subsidiary of an issuer, who was convicted in the past three years by a foreign court of a felony or misdemeanor described in paragraphs (i) through (iv) of Section 15(b)(4)(B) of the Exchange Act.
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