TY - JOUR AU - Aran, Yifat PY - 2019/12/01 Y2 - 2024/03/28 TI - Making Disclosure Work for Start-Up Employees JF - Columbia Business Law Review JA - CBLR VL - 2019 IS - 3 SE - Articles DO - 10.7916/cblr.v2019i3.5117 UR - https://journals.library.columbia.edu/index.php/CBLR/article/view/5117 SP - 867–963 AB - <p><em>Equity-based compensation of startup employees is attracting growing and skeptical attention in academia and the media. Legal and finance scholars have raised concerns that employees are misinformed regarding the value of their equity grants in a manner that could distort their employment and investment decisions. This Article addresses these emerging concerns by articulating a theoretical and practical framework for the regulation of start-up employees’ human capital investments. This framework balances the confidentiality interests of employers with employees’ need for ongoing and realistic valuation of the return on their labor.<span class="Apple-converted-space">&nbsp;</span></em></p><p><em>Start-ups commonly rely on Rule 701 of the Securities Act to grant equity-based compensation to their employees without registering these securities with the Securities and Exchange Commission. This Article describes the flaws of the current regulation and proposes concrete amendments including (1) replacing the requirement to disclose the issuer’s financial statements with a requirement to disclose fair market valuation and exit waterfall analysis; (2) changing the threshold that triggers the enhanced disclosure requirement from when the company issues equity-based compensation&nbsp;</em><em>exceeding $10 million within a twelve month period, to when the company issues securities to at least 100 employees, and these securities aggregately convey over 10% ownership in any class of shares; and (3) advancing the timing of the disclosure from its current post-employment stage to the offer letter stage.<span class="Apple-converted-space">&nbsp;</span></em></p> ER -