Understanding Rule 144 – Reselling Restricted & Control Securities

Rule 144, a crucial part of the Securities Act of 1933, provides a “safe harbor” for selling restricted or control securities to the public without undergoing the formal SEC registration process—provided certain conditions are met.

Core Concepts

Restricted Securities
These are shares obtained through private transactions directly from the issuer and not registered with the SEC. Such shares are subject to a mandatory holding period before resale is permitted.

Control Securities
These are owned by individuals who have significant influence over a company—executives, directors, or large shareholders—and are therefore subject to additional restrictions under Rule 144.

How Rule 144 Operates

Rule 144 lays out the roadmap for how restricted and control securities may be sold legally in the open market. Sellers must adhere to specific guidelines established by the SEC.

Key Conditions for Resale

1. Holding Period
   • Reporting Companies – Both affiliates and non-affiliates must hold restricted securities for at least six months.
   • Non-Reporting Companies – The minimum holding period extends to 12 months.
2. Public Information Requirement
   The issuing company must provide current and adequate public information (e.g., financial reports, corporate disclosures) so investors have access to relevant data.
3. Volume Limitations (Affiliates Only)
   Affiliates may not sell more than the greater of:
   • 1% of the issuer’s total outstanding shares, or
   • The average weekly trading volume over the previous four weeks.
4. Manner of Sale
   • Affiliates must execute sales through brokers or market makers and on an unsolicited basis.
   • Non-affiliates are not bound by these same limitations once the holding period has been met.
5. Form 144 Filing (Affiliates Only)
   Affiliates must file Form 144 with the SEC before or at the time of sale if the transaction exceeds 5,000 shares or $50,000 in value.

Real-World Illustration

Imagine Michael, a senior executive of BrightFuture Technologies, Inc., an SEC-reporting company. He received 20,000 restricted shares six months ago.

• Holding Period – Completed (six months).
• Public Information – The company remains current with its SEC filings.
• Volume Limits – With 1,000,000 shares outstanding and an average weekly volume of 15,000 shares, Michael may sell up to 15,000 shares in a 90-day period (since this is greater than 1% of outstanding shares, or 10,000 shares).
• Manner of Sale – Through a broker or market maker, on an unsolicited basis.
• Filing – Form 144 must be submitted electronically before completing the trade.
• Legend Removal – The restrictive legend on the share certificates must be cleared by the transfer agent, typically with the issuer’s approval.

Filing Updates

• Electronic Filing – Since April 2023, affiliates of reporting companies are required to file Form 144 via the SEC’s EDGAR system.
• Paper Filing – Still allowed for affiliates of non-reporting issuers.

Our Role in the Process

Complying with Rule 144 can be complex, particularly when it comes to opinion letters, holding period verification, and clearing restrictive legends.

Our firm assists by:

• Preparing Rule 144 legal opinion letters
• Guiding clients through compliance and filing procedures
• Ensuring transactions meet all SEC requirements

To begin, we’ll need:

• A completed Rule 144 Opinion Letter Retainer Agreement
• A Rule 144 Equity Information Form
• Copies (front and back) of your stock certificates
• Documentation of how your securities were acquired (purchase agreements, wire confirmations, etc.)

If you’re ready to move forward—or simply need answers about your situation—contact us for guidance from a firm that knows both the law and the business realities of securities transactions.