Employee Incentive Compensation and Rule 701

Summary

This practice note discusses the exemption provided by Rule 701 (17 C.F.R. § 230.701) under the Securities Act of 1933, as amended (Securities Act), for awarding employee incentive compensation. The offer and sale of a security in the United States or to U.S. persons must be registered under the Securities Act unless the offer or sale qualifies for an exemption from such registration. Section 2(a) of the Securities Act (15 U.S.C. § 77b(a)) contains expansive definitions of the terms "security," "offer," and "sale" with the result that almost all forms of equity-based compensation provided by an employer to its employees or other service providers could potentially implicate the federal securities laws.