Rule 144: Selling Restricted & Control Securities
Rule 144 provides a safe harbor exemption that allows public resale of restricted and control securities when specific SEC conditions are satisfied.
What Are Restricted Securities?
Restricted securities are securities acquired through unregistered, private sales from an issuing company or affiliate. These securities are commonly received through private placements, Regulation D offerings, employee benefit plans, professional services compensation, or startup capital.
What Are Control Securities?
Control securities are securities held by company affiliates such as executive officers, directors, or significant shareholders who have the ability to influence company management or policies.
Rule 144 Conditions
To sell restricted or control securities publicly, sellers must satisfy the applicable requirements under Rule 144.
Holding Period
Reporting companies generally require a six-month holding period. Non-reporting companies require a one-year holding period.
Current Public Information
Adequate public information about the issuing company must be available, including business details, officers, directors, and financial statements.
Trading Volume Formula
Affiliate sales are limited to the greater of 1% of outstanding shares or applicable exchange volume requirements.
Brokerage Transactions
Sales must be handled as ordinary brokerage transactions without special solicitation arrangements.
SEC Filing Requirement
Affiliates must file Form 144 when sales exceed 5,000 shares or $50,000 within a three-month period.
Removing Restrictive Legends
Even after Rule 144 conditions are met, restricted securities cannot be publicly sold until the restrictive legend is removed. The transfer agent generally requires issuer consent, often through an opinion letter from securities counsel.
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