Every offer and sale of securities in the United States must either be registered with the Securities and Exchange Commission (SEC), or exempt from registration under rules established by the SEC. Recognizing that the registration process is cumbersome and expensive, and that incentivizing employees through the offering of stock, options, and other equity-based awards is a vital tool for employers and is not principally undertaken to raise capital for the issuer, the SEC many years ago adopted Rule 701.
Rule 701 provides an exemption from registration for offerings by non-public companies under written compensation plans to employees, directors, officers, consultants, and advisors, as long as certain limits on the size and other conditions of the offering are met.
However, in recent years as the gig economy has blossomed, it has become clear that gig economy workers do not fit comfortably within the categories of individuals eligible under Rule 701. Now the SEC is proposing for public comment amendments to Rule 701 that, for a five-year trial basis, would specify a new category of eligible recipients—platform workers—defined as workers who provide services through the issuer’s internet-based marketplace platform or another widespread technology-based marketplace platform or system.
The SEC is also proposing amendments, on a five-year trial basis, that would allow public companies to include such workers in compensation plans registered in short-form registration statements on Form S-8.
We will monitor the public comment period and report further if the SEC ultimately adopts any amendments to its rules in this area.
For more information, please reach out to William Ross in the Los Angeles office of Hirschfeld Kraemer LLP, firstname.lastname@example.org, or (310) 255-1828.