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Through a private placement, Teddy purchases a 20% equity stake in Big Stick Industrial Adhesives. Are his shares considered control securities? Are they considered restricted securities?
A. Restricted only
B. Control only
C. Both control and restricted
D. Neither control nor restricted
A restricted security is one that cannot normally be sold by its current owner, for a certain period of time after it is acquired. A security may be restricted for a couple reasons, all having to do with how the security was acquired. The most common reason is that securities acquired through private placements are restricted.
A control security is simply one owned by an affiliate of the issuer (also called an insider). Insiders include officers, directors, and shareholders who own more than 10% of the company.