In the U.S., all sales of securities must be either registered with the SEC or exempt from such registration, or else they are illegal. Of the various exemptions available for the resale of restricted securities, the most commonly used is Rule 144.
Rule 144 was promulgated under Section 4(a)(1) the Securities Act of 1933. It provides shareholders with a “safe harbor” for the sale of restricted or control securities without the need for registration. In addition to allowing shareholders to sell their securities, Rule 144 also permits the restrictive legend to be removed in most cases. However, in order to sell your shares or have the restrictive legend removed, you will need an opinion of counsel stating that the sale is eligible to use Rule 144.
The determining factors for whether a security qualifies for Rule 144 are:
Whether or not the issuer is a fully current, reporting company as defined by the Securities and Exchange Act of 1934
- If the issuer is a fully current, reporting company, the applicable hold period for their shares is six months.
- If the issuer is not current or is non-reporting, the applicable hold period for their shares in one year.
Whether the proposed security holder is an affiliate of the issuer
- Affiliates of the issuer are limited in the manner of sale and number of shares they may sell at any given time.
- For example, affiliates and control persons may only sell up to 1% of the issuer’s total outstanding stock every three months and generally must sell through a broker-dealer transaction.
- Whether the issuer is or has ever been a shell company
- Rule 144 is not available for securities of uncured shell companies.
- If an issuer was a shell company in the past (i.e. it once had nominal operations and nominal assets at the same time), the only way for it to cure its shell status is to (i) cease being a shell company, (ii) be a fully current, reporting company (including interactive data on its website) for at least 12 months, and (iii) have had filed “form 10 type” information indicating its non-sell status at least one year prior to the time of the letter being written.
- How long the restricted shares have been beneficially owned
- As mentioned above, the securities must be held by the shareholder for either six months or one year, depending on the issuer’s reporting status.
- A shareholder may be able to “tack” onto a previous shareholder’s hold period in order to meet the applicable hold requirement so long as the previous shareholder was not an affiliate of the issuer at any point during the 90 days prior to the date of acquisition.
Austin Legal Group, APC will be happy to prepare your Rule 144 attorney letter for you. We charge a flat fee of $300. In order for us to draft your opinion letter, you will need to download our Opinion Letter Retainer Agreement and Equity Information Sheet from our website or contact our office to request we email or mail you the documents. We will also need copies of the front and back of your stock certificate(s) and copies of all documents supporting how you acquired the securities (e.g. purchase agreement, services agreement, debt conversion documents, etc.). All requests and documents can be emailed to email@example.com.