Can Rule 144 Be Used By a Shell Company?

The SEC defines a Shell Company as an Issuer that has either:

  1. Nominal operations;
  2. Assets consisting solely of cash and cash equivalents; or
  3. Assets consisting of any amount of cash and cash equivalents and nominal other assets.

Issuer Must File Reports for 12 Months After Ceasing to Be a Shell

SEC Rule 144 may not be used to sell stock in a current Shell Company.  Rule 144 also cannot be relied upon by a Shareholder to sell stock in a former Shell Company, unless the Issuer has been reporting to the SEC for at least 12 months after it ceased to be a “shell” and is current in its reports.

Alternatives to Rule 144 for Shareholders Stuck With Stock in Former Shells

This requirement does not concern the Shareholder or the shares themselves, and applies even if the Shareholder’s holding period is greater than 12 months…and even if the Issuer was not a “shell” when the Shareholder acquired the stock.

Shareholders stuck with illiquid stock in a former Shell Company that is not current in its reporting to the SEC or to OTCMarkets.com can contact an experienced securities attorney to discuss alternatives to Rule 144 when clearing restricted stock.

What is a Rule 144 Non Shell Opinion?

Clearing Firms Can Request Opinions Regarding the Issuer’s Non Shell Status Even if the Certificate is Without Restriction

Sometimes Shareholder already hold stock certificates with the restricted legend removed, so a typical 144 letter is not requested by a clearing firm.  However, even when the cert appears free trading, sometimes the Issuer’s financials and filings are light on detail, leading some to question whether or not the Issuer is an undeclared shell.  When this happens, Shareholder’s can obtain a Non Shell Opinion Letter from an experienced securities attorney, like those at OTCLawyers.com.

What is a Shell According to Rule 144?

Under Rule 144, a Company does not meet the definition of a “shell” if it has more than

  1. Nominal operations;
  2. Assets consisting solely of cash and cash equivalents; or
  3. Assets consisting of any amount of cash and cash equivalents and nominal other assets.

When a staff attorney or compliance specialist at a brokerage requests a Non Shell Opinion Letter, they are looking for specific details which demonstrate that the Issuer has an operating business and significant assets.

Not All Securities Attorneys Draft Rule 144 Non Shell Opinions

Not every securities attorney will be comfortable with drafting a Non Shell letter under Rule 144 if the Issuer’s filings show zero dollars on the balance sheet.

However, an experienced securities law firm like the Law Office of Matheau J. W. Stout, Esq. knows that sometimes Issuers hold significant assets that are not highlighted in their financials, but may be referenced within their disclosures, such as intellectual property, land, equipment, accounts receivable and leases.

Shareholders should consult with a securities attorney who is willing to research the Non Shell issue thoroughly, and who can document an OTC Issuer’s assets and operations in a detail Non Shell Opinion Letter.