Is there a limit to the number of shares I can sell under Rule 144?

For non affiliates, there is no limit.  If you are an affiliate of an Issuer, you are subject to the volume trading limitations under Rule 144.

In a three (3) month period, an affiliate can sell only

  1. a maximum of one percent (1%) of the number of issued and outstanding shares for an OTC Markets Pink Sheet or Bulletin Board stock; or
  2. if the stock is traded on NASDAQ or an exchange like the NYSE, the average weekly trading volume for the full four (4) week period preceding the date you file your Form 144 with the SEC, if it is higher than the one percent (1%) limitation.

Affiliate shareholders seeking to sell stock under the Rule 144 volume trading limit can contact Matt Stout, securities lawyer at (410) 429-7076 for a review of their documents at no cost.

Is Stock Purchased from an Affiliate’s Spouse Restricted Under Rule 144?

This depends on whether the Affiliate’s spouse lives in the same household as the Affiliate.

If the Affiliate’s spouse lives in the same home as the Affiliate of the Issuer, the Shares are restricted and considered “Affiliate Shares” as they are still “beneficially owned” by the Affiliate, no matter how long ago the Shares were transferred to the Affiliate’s spouse.

Under Rule 144(a)(2)(i), if they live at the same address the Affiliate and spouse are regarded as essentially the same person.

Is stock received under Section 1145(a) of the Bankruptcy Code restricted?

No. Shareholders who receive stock pursuant to a Bankruptcy Code proceeding under the facts described in Section 1145(a) of the Bankruptcy Code would not receive restricted stock.

The stock is not considered “restricted” because the Shares are considered to have been received in a “public offering” under Section 1145(c) of the Bankruptcy Code.

What happens if I do not sell all the shares indicated on my Form 144 within the three months?

Under SEC Rule 144, there are essentially three restrictions on the sale of restricted stock by officers, directors, insiders or shareholders owning greater than 10% of the issuer’s stock, or other control persons of a public company (“Affiliates”).

  1. Affiliates must file Form 144 with the SEC detailing the number of shares being sold under Rule 144, the total number of shares beneficially owned by the Affiliate, showing the total issued and outstanding shares of the same class of securities as those being sold; and
  2. Affiliates must sell their restricted stock through a registered broker-dealer; and
  3. Affiliates must comply with the trading volume limitations for Affiliates under Rule which says that Affiliates of OTC Bulletin Board and OTC Markets public companies cannot sell greater than 1% of the total issued and outstanding shares of stock in any 3 month period.

So, if an Affiliate filed Form 144 and was prepared to meet those three requirements but did not sell all of the shares indicated on Form 144, the Affiliate has two choices:

  1. Affiliates can file a new Form 144, which adds those shares unsold with other shares up to the 1% limit; or
  2. Affiliates can direct their broker to return the unsold shares to the Issuer’s Transfer Agent, which will reissue the Affiliate a certificate with a Rule 144 restrictive legend that adds the unsold shares back in.

Affiliates seeking assistance in preparing a Rule 144 legal opinion for the sale of restricted stock can contact securities lawyer Matt Stout at (410) 429-7076 or mstout@otclawyers.com

When does my holding period start for stock I received as a gift?

Under Rule 144 a Donee Can Tack Onto the Donor’s Holding Period

When discussing the gifting of restricted stock, the person giving the gift of shares is called the “donor” while the person receiving the gift is known as the “donee.” Under SEC Rule 144, the donee is allowed to tack onto the donor’s holding period, meaning that there is no additional holding period involved when stock is gifted versus purchased.

Rule 144 Holding Period for SEC Reporting Companies

For “fully reporting” Issuers, that file Forms 10-Q, 10-K and 8-K with the SEC under the Securities Exchange Act of 1934, the holding period is six (6) months from the date the donor acquired the restricted stock.

So if you receive a gift of restricted stock in an OTC Bulletin Board (OTCBB) or OTC Markets OTCQB or OTCQX Issuer that was acquired by the donor seven (7) months ago, you may tack onto the donor’s holding period and your Rule 144 legal opinion can state that you have satisfied the Rule 144 holding period for shares in an SEC reporting company.

Rule 144 Holding Period for OTC Pink Sheet Stocks

The holding period for Non-Reporting companies such as OTC Markets Pink Sheets is one (1) year.  Just like with SEC reporting Issuers, the holding period for your gifted stock in an OTC Markets Pink Sheet begins when your donor’s holding period began, and you can tack onto the donor’s holding period in order to satisfy the one (1) year requirement under Rule 144.

What if the Donor Was an Affiliate at the Time of the Gift?

Whether the Issuer is an SEC reporting company or not, if the Donor was an Affiliate of the company at the time of the gift, you have received Affiliate stock, and you are subject to the Rule 144 trading volume limitations just as if you are were an Affiliate.

This means you must fill out Form 144 to provide notice of your sale of restricted stock, and that you cannot sell more than 1% of the total issued and outstanding shares during any three (3) month period) for OTC Bulletin Board and Pink Sheet stocks.

Moreover, both you and the Affiliate share the same 1%, so you must aggregate your restricted stock sales with your donor’s sales to determine the limit on the number of shares you both can sell under Rule 144.

What if the Donor Had Ceased to Be an Affiliate Prior to the Gift to You?

If, however, the Donor had ceased being an Affiliate of the Company greater than Ninety (90) days prior to the gift of restricted stock to you, then you are not treated as an Affiliate under Rule 144, and you are not subject to trading volume limitations, and you are not required to file Form 144 with the SEC.

Shareholders with restricted stock in OTCBB, OTCQB, OTCQX and OTC Pink Sheet public companes (as well as those with restricted shares in NASDAQ and NYSE MKT issuers) can contact Matt Stout, securities attorney at (410) 429-7076 with questions or find further information at OTCLawyers.com.

How Long Can an Affiliate Use Form 144?

SEC Form 144 Is Only Good for Three Months

For an Affiliate of an OTC Bulletin Board or OTC Markets Pink Sheet Issuer, each Form 144 is only good for 3 months from the date Form 144 is filed with the SEC. If any of the Affiliate’s restricted stock remains unsold at the end of the 3 months, those securities can be included in a new Form 144 filing.

The Affiliate’s Broker will most likely be on top of this process and the Affiliate can also benefit by contacting a securities lawyer to issue a new Rule 144 opinion, since the Transfer Agent will most likely request one prior to allowing the sale of shares under the new Form 144 notice.

Shares Unsold Must Be Covered By a New Form 144

Under Rule 144, it is important that the Affiliate promptly issue a new Form 144 and obtain a legal opinion, since any shares that are both unsold and not covered under a new Form 144 must be returned by the broker to the Transfer Agent for the issuance of new  stock certificate with a restrictive or restricted legend.  This unnecessarily complicates the process, and essentially causes the Affiliate, Broker and Transfer Agent to start at square one.

A Securities Lawyer Can Help By Issuing a New Rule 144 Opinion Letter

To streamline the 144 opinion letter process, Affiliate Shareholders of OTC Bulletin Board and OTC Markets Pink Sheet stocks can contact Matt Stout, securities lawyer with OTCLawyers.com for a Rule 144 legal opinion.

Selling Restricted and Control Securities under SEC Rule 144

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:

  1. Is the Shareholder an Affiliate (or has he or she ever been an Affiliate)?
  2. Did the Shareholder acquire the Shares in a registration directly from the Company (S-1 or S-2 etc)?
  3. How long has the Shareholder owned or held the securities?
  4. Did the Shareholder acquire the Shares from an Affiliate?
  5. 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.