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)
Legal disclaimer: This document describes how the platform’s technical controls support regulatory compliance. It does not constitute legal, tax, or securities advice. Organizations must consult qualified legal counsel and, where applicable, qualified independent appraisers (e.g., for 409A valuations) for compliance guidance specific to their situation, jurisdiction, and offering type.
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.
2. Scope
| Component | In Scope | Notes |
|---|
| equa-server | Yes | Equity data model, cap table logic, document storage, transaction records |
| equa-web | Yes | Cap table UI, grant management, certificate generation, document upload |
| PostgreSQL | Yes | Equity entity persistence, audit trail |
| AWS S3 | Yes | Document storage for agreements, valuations, certificates |
| Scope Element | Details |
|---|
| Regulatory Frameworks | SEC Rule 701 (compensatory plans), Regulation D (exemptions), IRC Section 409A (valuation support), state blue sky (including Delaware as a common incorporation state) |
| Data Types | Shareholdings, options, plans, security types, legends, operating agreements, authorizations |
| Processes | Grant issuance, certificate tracking, board approval tracking, operating agreement versioning, transfer restrictions via legends |
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.
4. Current Implementation
4.1 Equity Data Model
Source: equa-server/modules/persistence/src/schema.ts
The platform stores equity data across the following entities:
| Entity | Line | Key Fields | Purpose |
|---|
| Shareholdings | 1131 | shares, issueDate, serialNumber, legend, member, organization, securityType, shareholderName, exercised | Equity certificate records with serial numbers and legal legends |
| SecurityTypes | 925 | shareClass, certifiedShares, fractionalShares, votingShares, legend, price, issueDate, dividendConfig | Share class definitions (common, preferred, etc.) |
| SecurityTypeShares | 997 | securityType, shares, boardApprovalDocument | Authorized share counts per security type |
| Plans | 647 | boardApprovalDate, termYears, name, organization, approvedEquities, incentivePlanDocument | Equity incentive plans with board approval tracking |
| Options | 808 | shares, startDate, vestingSchedule, member, organization, security, legend, note | Stock option grants with vesting schedules |
| Holdings | 1417 | authorized, outstanding, fullyDiluted, pricePerUnit, holdingType, legend, issueDate, plan | Cap table summary (authorized/outstanding/fully-diluted) |
| Legends | 1110 | content | Legal legend text for certificates |
| LegendMetas | 1116 | legend, organization, name, author | Legend metadata linking legends to organizations |
| Authorizations | 1378 | authorizationDate, document, note, organization, target, documentTypeName | Board authorization records with dates and documents |
| Pools | 689 | boardApprovalDate, shares, pricePerShare, vestingSchedule, organization | Option pools with board approval |
| Transactions | 772 | currency, from, to, value, memo | Equity transaction records |
| OperatingAgreements | 1048 | organizationDetails, shareholdings, timestamp, securityTypesSeniority, securityTypesShares | Versioned operating agreements linking all equity state |
| Organizations | 1207 | name, ein, companyType, equityStructure, ownershipTransferability | Company registration and structure |
| TaxIds | 871 | organization, name, value (EIN/SSN) | Tax identification numbers for regulatory filings |
4.2 Serial Number Tracking
Source: equa-server/modules/persistence/src/schema.ts
| Entity | Field | Line | Purpose |
|---|
| Shareholdings | serialNumber | 1165 | Integer, unsigned; unique certificate serial number per shareholding record |
| Holdings | serialNumber | 1482 | Optional integer; serial tracking for holding-level records where applicable |
serialNumber (type: integer, unsigned), supporting SEC and state requirements for unique identification of certificated shares and chain of custody.
4.3 Board Approval Dates on Plans
Source: equa-server/modules/persistence/src/schema.ts
| Entity | Fields | Line | Purpose |
|---|
| Plans | boardApprovalDate, boardApprovalDocument, incentivePlanDocument | 647, 661–667 | Compensatory plan board approval date and linked documents |
| PlansSecurities | (plan–security link) | 680 | Links plans to approved security types |
| Pools | boardApprovalDate | 689, 691 | Option pool board approval |
| SecurityTypeSharesTable | boardApprovalDocument | 997, 999 | Authorized share count per security type with optional board approval document |
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.
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:
| Field | Purpose |
|---|
timestamp | Date of this version |
previous | Hash of the prior OperatingAgreement (linked list of versions) |
shareholdings, plans, securityTypesSeniority, securityTypesShares, transactions | Hashes to the equity state at this version |
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.
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.
5.1 Requirements
| Requirement | Platform Support |
|---|
| Issuance under a written compensatory benefit plan | Plans entity tracks grant agreements and plan documents (incentivePlanDocument field) |
| 12-month aggregate sales limit ($1M or 15% of assets) | Cap table tracks issuances via Shareholdings and SecurityTypeShares; threshold monitoring should be added |
| Disclosure requirements (above $10M threshold) | Document storage (AWS S3 via Files entity) supports disclosure packages |
| Copy of plan provided to recipients | Document delivery tracking available via data room (DirectoryItems entity) |
- 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
5.3 Gap: Automated Rule 701 Threshold Alerts
No automated Rule 701 threshold monitoring exists.Recommendation: Add a monitoring dashboard that tracks 12-month rolling issuance totals against Rule 701 thresholds and alerts administrators when approaching limits.
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).
6.1 Relevant Exemptions
| Exemption | Description | Platform Relevance |
|---|
| Rule 504 | Up to $10M in a 12-month period | Small raises; limited platform tracking needed |
| Rule 506(b) | Unlimited raise, up to 35 non-accredited investors, no general solicitation | Investor accreditation status tracking |
| Rule 506(c) | Unlimited raise, accredited investors only, general solicitation permitted | Accreditation verification workflows |
- 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
6.3 Gap: Accreditation Verification Workflow
No structured accreditation verification workflow exists.Recommendation: Add a structured accreditation verification workflow with document upload, expiry tracking, and renewal reminders.
7. State Blue Sky Laws
Securities offerings must comply with state-level “blue sky” laws in addition to federal regulations.
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
- 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
7.3 Gap: State Filing Tracking
No state compliance tracker exists.Recommendation: Add a state compliance tracker that maps offerings to required state filings, tracks filing status, and alerts on deadlines.
8. Transfer Restrictions
Private company securities are subject to transfer restrictions under federal and state law.
8.1 Restriction Types
| Restriction | Source | Platform Support |
|---|
| Securities Act restrictions | Section 4(a)(2), Rule 144 | Transfer approval workflows |
| Contractual restrictions | Right of first refusal (ROFR), lock-up agreements | Agreement tracking, transfer gating |
| State law restrictions | Blue sky laws | Member state tracking via Addresses |
| Company bylaw restrictions | Board approval requirements | Authorizations entity tracks board approvals |
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)
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:
- Securities Act restriction (not registered, cannot be sold without registration or exemption)
- State blue sky restriction (if applicable)
- Company transfer restrictions (ROFR, board approval)
- 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).
8.4 Gap: Automated Legend Management
Legend assignment is manual. No automated legend template system exists.Recommendation: Implement a legend template system that automatically applies the correct combination of legends based on share class, jurisdiction, and grant type.
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.
The platform supports storage and tracking of 409A-related data (uploaded reports, effective dates, per-share values). It does not perform 409A valuations or provide valuation opinions. Users must obtain valuations from qualified independent appraisers (QIAs) as required by IRC Section 409A and IRS guidance.
9.1 Requirements
| Requirement | Platform Support | Source |
|---|
| Fair market value determination | 409A valuation reports can be uploaded via Files entity and stored in the data room | equa-server/modules/persistence/src/schema.ts (Files, line 585) |
| Valuation date tracking | Effective dates tracked via SecurityTypes.issueDate and document metadata | equa-server/modules/persistence/src/schema.ts (SecurityTypes, line 925) |
| Option exercise price >= FMV | Options entity records exercise terms; SecurityTypes.price stores per-share values | equa-server/modules/persistence/src/schema.ts (Options, line 808) |
| Reasonable valuation method | Supports qualified independent appraiser reports uploaded as documents | Files + DirectoryItems entities |
- 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
9.3 Gap: Automated FMV Validation
No automated fair market value validation exists at grant time.Recommendation: Add a validation check that warns when a new option grant’s exercise price is below the most recent 409A valuation per-share price stored in SecurityTypes.price.
10. Authorized Shares Tracking
10.1 Cap Table Integrity
Source: equa-server/modules/persistence/src/schema.ts (Holdings entity, line 1417; SecurityTypeShares entity, line 997)
| Metric | Entity/Field | Tracking |
|---|
| Authorized shares | Holdings.authorized, SecurityTypeShares.shares | Tracked per share class at the organization level |
| Issued shares | Holdings.outstanding | Calculated from active grants, exercises, and direct issuances |
| Fully diluted | Holdings.fullyDiluted | Includes options and convertible instruments |
| Available shares | Computed | Authorized minus issued minus reserved |
Authorizations entity (line 1378) with authorizationDate and document fields.
10.2 Gap: Over-Issuance Prevention
No hard block prevents issuance transactions that exceed authorized shares.Recommendation: Add a hard block (not just a warning) that prevents issuance transactions exceeding authorized shares, with an admin override requiring documented board authorization via the Authorizations entity.
11. Monitoring
| Monitor | Current State | Recommendation |
|---|
| Rule 701 12-month issuance | Not automated | Dashboard or report comparing rolling 12-month issuances to Rule 701 thresholds |
| 409A effective dates vs grant prices | Manual | Alert when new option grant price is below latest 409A per-share value for that security type |
| Authorized vs issued shares | Tracked in schema | Hard block on issuances that would exceed authorized shares (with documented override) |
| Board approval dates | Stored on Plans, Pools, SecurityTypeShares | Operational review that all new plans/pools have approval date and document where required |
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.
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.
14. Regulatory References
| Standard | Requirement | Current Status |
|---|
| SEC Rule 701 | Compensatory benefit plan exemption, 12-month aggregate limits | Partial — issuances tracked, but no automated threshold alerts |
| Regulation D (Rule 506) | Accredited investor verification, Form D filing | Partial — investor data stored, but no structured verification workflow |
| IRC Section 409A | Stock options granted at FMV, qualified valuation | Partial — valuation storage supported, but no automated FMV validation |
| State Blue Sky Laws | Notice filings, state-specific exemptions | Partial — state data available via addresses, but no filing tracker |
| SEC Rule 144 | Transfer restriction tracking, holding periods | Partial — certificate legends and transfer records exist |
| SOC 2 PI1.3 | Processing accuracy for financial data | Partial — cap table calculations exist, but no automated reconciliation |
15. Revision History
| Date | Version | Author | Changes |
|---|
| 2026-02-21 | 0.1 | Agent (Phase 5 Session A) | Initial draft |
| 2026-02-21 | 0.2 | Agent (Phase 5 Session B) | Template alignment, legal counsel disclaimer, entity-by-entity data model with schema.ts citations, 409A clarification (storage only, not valuation), regulatory references table |
| 2026-02-22 | 0.3 | Agent (Phase 5) | Policy Statement; Serial number tracking (4.2), Board approval dates on Plans (4.3), Operating agreement versioning (4.4); Delaware disclaimer; Monitoring, Exception Process, Incident Response; 409A support-vs-perform clarification |
