Explanation of Affiliates
Rule 144 at (a)(1) defines an “affiliate” of an issuing company as a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer.”
Directors, officers and holders of ten percent or more of an issuing company’s voting securities (including securities which are issuable within the next sixty days) are deemed to be affiliates of the issuing company. Affiliation due solely to stock ownership at the 10% or greater level is a rebuttable presumption, if facts against exercise of control are available. A separate opinion, however, is generally required addressing lack of affiliation.
To determine if you own or control ten percent or more of the issuing company’s outstanding voting securities, add the following numbers of shares-
(a) all the voting securities you own personally, benefit from financially, or have the right to vote,
(b) the voting securities your wife owns, benefits from financially, or has the right to vote,
(c) the voting securities owned by your minor children and your parents living with you, any of them benefit from financially, or have the right to vote,
(d) the voting securities owned by any trust of which you are a trustee, any estate of which you are the administrator, and any company or other entity of which you are a director, executive officer or owner of 10% or more of its voting securities, and
(e) any non-voting securities (including debt securities) you own, control or have a right to acquire in the issuing company, if the non-voting securities are convertible into or exchangeable for voting securities or the securities can be acquired now or within the next 12 months.
The sum of (a) through (e) is the voting securities “you own” for purposes of Rule 144.
“Affiliates” of an issuing company always need a Rule 144 opinion before selling any stock of the issuing company, without regard to whether it is restricted stock or stock purchased pursuant to a registration statement or purchased in the open market. They also need to file a Form 144 with the SEC and, if an exchange listed stock, with the exchange. Arrangements to obtain an opinion must be made by the affiliate’s stock broker, because a broker’s representation letter is also required.
Securities sold by an affiliate include securities sold by persons who a relative or spouse of the affiliate, or any relative of such spouse, any one of whom has the same home as the affiliate; any trust or estate in which the affiliate or any of the related persons specified in the preceding clause collectively own 10 percent or more of the total beneficial interest or of which any of them serve as trustee, executor or in any similar capacity; and any corporation or other organization (other than the issuer) in which the affiliate or any of the related persons specified in the first preceding clause are the beneficial owners collectively of 10 percent or more of any class of equity securities or 10 percent or more of the equity interest.
Because sales volume limitations of Rule 144 do not apply to non-affiliates, the definition of “person” in Rule 144(a)(2) does not have a practicable application to non-affiliates of issuing companies.