Rule 144– Re-sales of Restricted and Control Securities
Investors who buy securities in a private placement cannot go out and immediately sell them. These securities are called restricted securities and must be sold through a Rule 144 exemption.
Rule 144 requires purchasers of restricted securities to hold them for a certain amount of time before they sell them. If the issuer is a company that files reports to the SEC, the holding period is 6 months. If the issuer is a non-reporting company, the holding period is 12 months. Before selling restricted securities, the investor will need to get the restricted legend removed from the securities. This can only be done by a transfer agent and it requires permission of the issuer.
Rule 144 also covers the sale of control securities. Control securities are securities held by an affiliate of the issuer. An affiliate is someone who is controlled by the issuer, or one who controls the issuer. A person “controls” an issuer if the person has power to direct corporate decisions. This includes officers, directors, and major shareholders who own more than 10% of the stock of the company. Affiliates are also called insiders.
When an affiliate wants to sell control securities that are not restricted securities, they are subject to trading volume limits. Over a 90-day period, they may sell no more than the greater of:
- • 1% of the issuer’s outstanding shares OR
- • the company’s average weekly trading volume of the securities during the four weeks preceding the sale
If the sale is more than 5,000 shares or $50,000, the affiliate must file a notice of proposed sale with the SEC on Form 144.
If an affiliate is selling control securities that are also restricted securities, they are subject to both holding period restrictions and volume trading limits.
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Holding Period Restrictions |
Trading Volume L |