At the Law Office of Matheau J. W. Stout, Esq., we are often called upon to research and draft SEC Rule 144 legal opinions for Shareholders who acquired stock as payment for consulting services.
The Consulting Agreement Should State the Holding Period Under Rule 144
The underlying Consulting Agreement is the most important document for a securities attorney to review when preparing a 144 letter in this situation because the language in the document will determine the holding period. Sometimes consultants working with OTCMarkets Issuers do not specify when the services are fully performed, and that can be problematic.
Under Rule 144, the Holding Period Does Not Start Until the Stock is Fully “Paid For”
The key here is that the holding period does not begin until the stock was fully earned, or paid for by the services. Sometimes Consulting Agreements are not specific in this regard, and that makes clearing restricted stock difficult, even when all other aspects of Rule 144 are met. Situations like this call for an experienced securities law firm, which can thoroughly review all of the facts and documents on which the legal opinion relies.
Vague Wording in Consulting Agreements Can Make Clearing Restricted Stock Difficult
If the Consulting Agreement states that in exchange for 1,000,000 shares, “the Consultant will provide services until August 1, 2020”, then the consideration paid for the Shares may not be fully “paid” until 2020 even if the document is over a year old. That is a terrible result due to vague language. That ambiguity can sometimes be remedied by a Board Resolution or letter from an Officer or Director of the Issuer, provided that relationship is still good. But what if the Consultant and Issuer are no longer working together? Or what if the Issuer is under the control of new management?
Specific Rule 144 Language in Consulting Agreements is Recommended
Contrast that with a Consulting Agreement that specifically states
“Issuer agrees that all 1,000,000 Shares shall be fully earned on June 1, 2010. Upon Consultant’s request, Issuer shall issue a Board Resolution and Transfer Agent instructions confirming that on June 1, 2010, Consultant shall be deemed to have paid full consideration for the 1,000,000 Shares under SEC Rule 144.”
Language like this is a good indicator that a securities attorney with expertise in Rule 144 drafted the document. Whether you are a consultant who would like a tightly drafted Consulting Agreement to use when providing services to OTC Bulletin Board and Pink Sheet companies, or a Shareholder trying to clear restricted stock, visit OTCLawyers.com to learn the next steps.