Startup Funding Espresso – Using Rule 701 To Issue Equity to Employees

Using Rule 701 To Issue Equity to Employees

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

In a startup, it’s helpful to compensate employees with company stock.

Most companies use stock options.

Rule 701 gives the startup the ability to issue equity to its employees.

This works even if they are not accredited investors.

The limit is $10M or 15% of the outstanding shares in a 12-month period.

Once you set the 12-month period, it must remain fixed.

Rule 701 provides an alternative to the traditional stock option plan.

It’s more flexible than an options plan and can be used to create more specific compensation plans.

Founders often align the 701 disclosure with the fiscal year of the company.

The shares are restricted stock, which means they must be registered with the SEC before one can trade them.

Consider Rule 701 for your stock compensation plan.

 

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