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Equity Regulatory Compliance

Status: DRAFT Owner: Engineering / Legal Last Review: 2026-02-22 Applicable Standards: SEC Rule 701 / Regulation D / IRC Section 409A / State Blue Sky Laws / SOC 2 (PI1)

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1. Purpose

As an equity management platform, Equa must support compliance with federal and state securities regulations. This document covers the regulatory framework (SEC Rule 701, Regulation D, Delaware and state blue sky considerations), the platform’s technical capabilities that support compliance, the entities that store equity and regulatory data, and areas requiring attention.

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2. Scope

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3. Policy Statement

The organization shall use platform capabilities to record equity issuances, compensatory plans, board approvals, and transfer restrictions in a manner that supports (but does not substitute for) legal and regulatory compliance. All substantive compliance decisions (e.g., exemption reliance, accreditation verification, valuation methodology) remain the responsibility of the organization and its legal and tax advisors.

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4. Current Implementation

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4.1 Equity Data Model

Source: equa-server/modules/persistence/src/schema.ts The platform stores equity data across the following entities:

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4.2 Serial Number Tracking

Source: equa-server/modules/persistence/src/schema.ts Certificate numbering is enforced at the Shareholdings level: each equity certificate record has a required serialNumber (type: integer, unsigned), supporting SEC and state requirements for unique identification of certificated shares and chain of custody.

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4.3 Board Approval Dates on Plans

Source: equa-server/modules/persistence/src/schema.ts Plans require a boardApprovalDate (required date column). Board approval documents can be stored via Plans.boardApprovalDocument and Plans.incentivePlanDocument; option pools and security-type share authorizations also track board approval, supporting SEC Rule 701 and internal governance.

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4.4 Operating Agreement Versioning

Source: equa-server/modules/persistence/src/schema.ts (OperatingAgreements, line 1048); equa-server/modules/captable/src/writing.d.ts The OperatingAgreements entity provides versioned snapshots of equity state: Writing functions transitionShareholdings and transitionPlans (in equa-server/modules/captable/src/writing.d.ts) create new operating agreement versions by linking updated shareholdings and plans to a new agreement record. OperatingAgreementsShareholdings (line 1078) and OperatingAgreementsTransactions (view, line 1101) link agreements to shareholding and transaction sets, supporting auditability and Delaware (and other state) requirements for maintained cap table and governance records.

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5. SEC Rule 701

Rule 701 provides an exemption from SEC registration for securities issued under compensatory benefit plans by non-reporting companies. Consult legal counsel to confirm applicability and disclosure obligations for your plans and issuance levels.

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5.1 Requirements

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5.2 Platform Capabilities

• Grant tracking — Stock option grants (Options), RSU grants, and other equity awards are recorded with grant date (startDate), vesting schedule (vestingSchedule), and quantity (shares)
• Plan document management — Equity incentive plan documents can be uploaded (Plans.incentivePlanDocument) and associated with the organization
• Threshold monitoring — The cap table tracks total issuances via SecurityTypeShares.shares and Holdings.outstanding, but automated threshold alerting (Rule 701 limits) is not yet implemented

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5.3 Gap: Automated Rule 701 Threshold Alerts

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6. Regulation D

Regulation D provides exemptions from SEC registration for private placements. Consult legal counsel to determine which exemption applies and to satisfy filing and verification requirements (e.g., Form D, accredited investor verification).

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6.1 Relevant Exemptions

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6.2 Platform Capabilities

• Investor tracking — Members (Members entity, line 892) associated with share classes include contact and identification data (fullName, email, address, phone)
• Accreditation status — Can be tracked via custom fields on member records
• Form D filing support — The platform stores the data needed for Form D filings (issuer info via Organizations, offering details via SecurityTypes, investor counts via Members) but does not generate or file Form D directly

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6.3 Gap: Accreditation Verification Workflow

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7. State Blue Sky Laws

Securities offerings must comply with state-level “blue sky” laws in addition to federal regulations.

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7.1 Considerations

• Delaware: Many companies are incorporated in Delaware; the Delaware General Corporation Law (DGCL) and court interpretations govern corporate actions, stock issuance, and cap table validity. Consult legal counsel for Delaware-specific requirements (e.g., valid issuance, stockholder records, certificate form).
• Notice filings — Many states require notice filings for Rule 506 offerings (typically Form D plus a state-specific cover page and fee)
• State-specific exemptions — Some states have their own exemptions for compensatory equity issuances
• Transfer restrictions — State laws may impose additional transfer restrictions beyond federal requirements

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7.2 Platform Capabilities

• State of incorporation tracking — Organizations entity records company type (companyType) and registration details (registrationNumber, startDate)
• Stakeholder state residence — Member addresses (Members.address, Addresses entity) provide state-level data for blue sky analysis

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7.3 Gap: State Filing Tracking

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8. Transfer Restrictions

Private company securities are subject to transfer restrictions under federal and state law.

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8.1 Restriction Types

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8.2 Certificate Management

Source: equa-server/modules/persistence/src/schema.ts (Shareholdings entity, line 1131) The platform supports equity certificate tracking with:

• Certificate numbering — Sequential certificate numbers per share class (Shareholdings.serialNumber, type: integer)
• Certificate status — Active or cancelled, tracked via Shareholdings.exercised and Shareholdings.previous (chain of custody)
• Legend requirements — Certificates carry restrictive legends linked via Shareholdings.legend referencing the Legends entity (line 1110)

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8.3 Standard Legend Text

Source: equa-server/modules/persistence/src/schema.ts (Legends entity, line 1110; LegendMetas entity, line 1116) Certificates should include legends covering:

1. Securities Act restriction (not registered, cannot be sold without registration or exemption)
2. State blue sky restriction (if applicable)
3. Company transfer restrictions (ROFR, board approval)
4. 409A valuation reference (for stock options)

The Legends entity stores the full legend text (content field). LegendMetas links legends to organizations with metadata (name, author).

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8.4 Gap: Automated Legend Management

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9. 409A Valuations

Section 409A of the Internal Revenue Code requires that stock options be granted at fair market value to avoid adverse tax consequences.

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9.1 Requirements

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9.2 Platform Capabilities

• Valuation history — Organizations can store multiple 409A valuations with effective dates via the data room and SecurityTypes.price per share class
• Exercise price validation — Options records include the security type reference, enabling comparison against the per-share price from SecurityTypes.price
• Document storage — Full valuation reports can be uploaded to the data room (Files entity, AWS S3) and associated with the organization

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9.3 Gap: Automated FMV Validation

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10. Authorized Shares Tracking

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10.1 Cap Table Integrity

Source: equa-server/modules/persistence/src/schema.ts (Holdings entity, line 1417; SecurityTypeShares entity, line 997) The platform enforces that total issued and reserved shares do not exceed authorized shares per class. Changes to authorized share counts (e.g., board-approved increases) are tracked via Authorizations entity (line 1378) with authorizationDate and document fields.

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10.2 Gap: Over-Issuance Prevention

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11. Monitoring

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12. Exception Process

Exceptions to equity policy (e.g., grant below 409A, issuance above normal limits) should be documented outside the platform (e.g., board resolutions, legal opinions) and, where applicable, linked via the Authorizations entity (authorizationDate, document, organization, target). No platform-level exception workflow exists today; organizations should define an internal process and retain evidence for auditors.

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13. Incident Response

Equity-specific incidents (e.g., erroneous grant, data correction, suspected unauthorized transfer) should follow the general Incident Response Plan. In addition: preserve operating agreement version history and audit trail entries; coordinate with legal before altering historical equity records; and document any corrective issuances or cancellations with board authorization references.

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14. Regulatory References

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15. Revision History