Rule 144: Selling Restricted Securities

When you acquire restricted securities or hold control securities, you must find an exemption from the US Regulator's registration requirements to sell them in the marketplace. Rule 144 allows public resale of restricted and control securities if a number of conditions are met. This overview tells you what you need to know about selling your restricted or control securities. It also describes how to have a restrictive legend removed.

What Are Restricted and Control Securities?

Restricted securities are securities acquired in unregistered, private sales from the issuer or from an affiliate of the issuer. Investors typically receive restricted securities through private placement offerings, as compensation for professional services, or in exchange for providing "seed money" or start-up capital to the company.

What Are the Conditions of Rule 144?

If you want to sell your restricted or control securities to the public, you can follow the applicable conditions set forth in Rule 144. The rule is not the exclusive means for selling restricted or control securities, but provides a "safe harbor" exemption to sellers. The rule's conditions are summarized below:

  1. Holding Period. Before you may sell any restricted securities in the marketplace, you must hold them for a certain period of time. The relevant holding period begins when the securities were bought and fully paid for. The holding period only applies to restricted securities.

  2. Adequate Current Information. There must be adequate current information about the issuer of the securities before the sale can be made. This generally means that the issuer has complied with the periodic reporting requirements.

  3. Ordinary Brokerage Transactions. All sales must be handled in all respects as routine trading transactions, and brokers may not receive more than a normal commission.

Can the Securities Be Sold Publicly If the Conditions of Rule 144 Have Been Met?

Even if you have met the conditions of Rule 144, you can't sell your restricted securities to the public until you've gotten the legend removed from the certificate. Only a transfer agent can remove a restrictive legend.

Since removing the legend can be a complicated process, an investor buying or selling a restricted security should engage a transfer agent to facilitate the procedures for removing a legend.

 

Latest News

Inter-Global Financial Regulatory Board
1500 Market Street, 16th Floor, East Tower, Philadelphia, Pennsylvania, 19102

Telephone: +1.267.297.3362
Fax: +1.267.289.7833
Email: [email protected]

Copyright © 1995 - 2019 Inter-Global Financial Regulatory Board. All rights reserved