If you are an investor who owns restricted or control securities, you may wonder how you can sell them
If you are an investor who owns restricted or control securities, you may wonder how you can sell them in the public market. Restricted securities are securities that you acquired in a private transaction from the issuer or an affiliate of the issuer, such as a private placement offering or an employee stock plan. Control securities are securities that you hold as an affiliate of the issuer, such as an executive officer, a director, or a large shareholder. Both types of securities are subject to certain restrictions on resale under the Securities Act of 1933, which requires that securities sold to the public must be registered with the SEC or qualify for an exemption.
One of the most common exemptions for selling restricted or control securities is Rule 144, which provides a safe harbor for investors who meet certain conditions. Rule 144 allows you to sell your securities without registering them with the SEC, as long as you comply with the following requirements:
- Holding period: You must hold your restricted securities for at least six months if the issuer is a reporting company (i.e., it files periodic reports with the SEC), or at least one year if the issuer is a non-reporting company. The holding period begins on the date you acquired the securities from the issuer or an affiliate of the issuer, and does not include any time that you had an option to purchase the securities. If you acquired your securities from another non-affiliate investor, you can add their holding period to yours.
- Current public information: The issuer must have current public information available for investors, such as annual and quarterly reports, proxy statements, and current reports on Form 8-K. This requirement applies only if you are selling restricted securities of a reporting company or if you are an affiliate of any issuer.
- Trading volume limit: If you are an affiliate of the issuer, you can sell only a limited amount of securities in any three-month period. The limit is the greater of 1% of the outstanding shares of the same class being sold, or the average weekly trading volume during the four weeks preceding the sale. The trading volume limit does not apply to non-affiliates selling restricted securities.
- Manner of sale: If you are an affiliate of the issuer, you must sell your securities in a broker's transaction or directly with a market maker. You cannot solicit orders to buy your securities or arrange for payment of commissions. The manner of sale requirement does not apply to non-affiliates selling restricted securities.
- Notice of proposed sale: If you are selling more than 5,000 shares or $50,000 worth of securities within a three-month period, you must file a notice with the SEC on Form 144 no later than the date of your sale. This requirement applies to both affiliates and non-affiliates selling restricted securities.
If you follow these conditions, you can sell your restricted or control securities without registering them with the SEC. However, this does not mean that you are free from liability for any fraud or misrepresentation in connection with your sale. You must still comply with the antifraud provisions of the federal securities laws and any applicable state laws.
Rule 144 is a complex and technical rule that has many exceptions and interpretations. You should consult with your broker, lawyer, or accountant before selling your restricted or control securities under Rule 144