SEC Rule 144 Provides Exemptions from SEC Registration Under Certain Conditions
If a Shareholder wants to remove a restricted legend in order to sell restricted stock or control stock, he or she must qualify for an exemption to the normal registration process for securities mandated by the SEC. The SEC Rule 144 criteria including different provisions for Affiliates and Non Affiliates.
Rule 144 Affiliate
An Affiliate is a control person (giving rise to the term control stock), usually an officer, company founder, director, spouse or child of such persons living under the same roof. Affiliates have more stringent requirements in order to qualify for the safe harbor provisions in Rule 144.
Restricted Stock Opinion Considerations for Securities Attorneys
The main points to consider when talking with an experienced broker and securities attorney are:
- Is the Shareholder an Affiliate (or has he or she ever been an Affiliate)?
- Did the Shareholder acquire the Shares in a registration directly from the Company (S-1 or S-2 etc)?
- How long has the Shareholder owned or held the securities?
- Did the Shareholder acquire the Shares from an Affiliate?
- Has the Company been a “shell” or “blank check company” within the last year?
An experienced stockbroker familiar with 144 stock can be of great help to Shareholders hoping to sell restricted stock. These brokers are often the quarterback and main point of contact for the team that includes a qualified securities attorney and the Company’s transfer agent.