THE proven source for fast Rule 144 opinions, and other securities opinions, too!
FREQUENTLY ASKED QUESTIONS
Rule 144 is complex and can be confusing. The answers to frequently asked questions may help you understand how the Rule works and the process. These are answers for individual stockholders, but may apply to trusts, estates, partnerships and corporations who own restricted stock or are controlling persons of an issuing company. If your question is not answered below, please e-mail our Client Service Department with your question. If your question relates to a specific FAQ or answer to a FAQ, please copy the FAQ and/or answer and paste these into your e-mail.
What, Who and When –
Using Brokers and Obtaining Opinions –
Exceptions and Defenses –
Reasons to Comply and for Legal Opinion –
Who is a Controlling Person (“Affiliate”) –
How Long Must I Own the Stock –
Mechanics of Rule 144 –
Getting an Opinion from Rule144Solution.com –
What stock does Rule 144 apply to?
Rule 144 applies to the resale of any stock into the public market –
- which is restricted stock,
- which is sold by a controlling person (“affiliate”) of the issuing company into the public securities market, whether or not it is restricted stock
What is “restricted stock”?
“Restricted stock” is stock –
- which you or a predecessor owner purchased directly from the issuing company without registration under the Securities Act of 1933,
- which you or a predecessor owner purchased or received as a gift or pledge directly from a controlling person (“affiliate”) of the issuing company, whether or not is was “restricted stock” in the hands of the affiliate.
“Restricted stock” usually has a legend on the certificate which gives notice that the stock can be sold only if registered under the Securities Act of 1933 or subject to a legal opinion.
To whom does Rule 144 apply?
Rule 144 applies to any person who wants to sell stock and who-
- wants to sell “restricted stock” into the public market,
- is an affiliate (controlling person) of the issuing company, whether or not the stock is “restricted stock”, or
- or is a controlling person (“affiliate”) of the issuing company and who wants to sell any of its stock (whether “restricted” or “free trading”) of the issuing company into the public securities market.
When does Rule 144 apply?
Rule 144 applies to the sale into the public securities market of restricted stock by anyone and of unrestricted stock sold by a controlling person (“affiliate”) of an issuing company. Sales into the public market involve a brokerage firm and are not face-to-face sales negotiated between a seller and a buyer. Rule 144 does not apply to private transactions, including sales, gifts, estate distributions and pledges, but does apply to the purchaser, donee, beneficiary and pledgee, when they sell the stock into the public market.
Do I need to use a broker to get an opinion for a Rule 144 sale?
Only an affiliate of the issuing company needs to use a broker to sell restricted or unrestricted stock of the issuing company into the public securities market. A non-affiliate can either use a broker, if he or she intends to sell the stock, or directly request an opinion from RULE144Solution.com and legend removal from the transfer agent.
Do I need to intend to actually sell the restricted stock to get a Rule 144 opinion?
Only an affiliate of the issuing company must intend to sell the restricted stock in order to obtain an opinion (through the seller’s broker). A non-affiliate is not required to intend to sell in order to get an opinion and a certificate without a legend.
Are there any exceptions to Rule 144?
Stock included in a registration statement is not subject to Rule 144 when it is sold as described in the related prospectus. Stock purchased from an issuing company that relied on Rule 504 under Regulation D, when resold by a non-control person, is not subject to Rule 144. However, if the issuing company did not satisfy the Rule 504 exemption requirements, even if it relied upon an opinion of counsel, the stock would be “restricted stock”. See the next answer on “good faith” defense.
Does “good faith” protect me from a violation of the Securities Act of 1933?
Good faith, based on ignorance of actual facts, misinformation or an incorrect opinion of counsel, is not a defense against a registration violation of the Securities Act of 1933. Essentially, there are no defenses, good faith or otherwise.
What is the reason I need to comply with Rule 144?
Compliance with Rule 144 protects you from being treated like an “underwriter”. If you are treated like an “underwriter”, your stock would need to be registered under the Securities Act of 1933 when you sell it into the public securities market. If you are treated like an “underwriter” and sell stock without registration, you violate civil and criminal provisions of the Securities Act of 1933.
What is the reason I need a legal opinion to comply with Rule 144?
Rule 144 itself does not require you to have a legal opinion. Transfer agents and issuing companies do require legal opinions before they will issue a clean certificate or put a certificate in street name. The opinion protects the transfer agent, the issuing company and the broker from a charge that they have facilitated (aided and abetted) a stock transfer or effected a sale in violation of the federal Securities Act of 1933. And, a legal opinion protects the issuing company’s claim that it had an exemption from registration when it originally sold the stock. The legal opinion does not protect you, if it is later determined that you were not entitled to receive the opinion. See the preceding answer on “good faith” defense.
If Rule 144 does not apply to private sales, gifts and pledges, what is the reason I am required to get a legal opinion?
As noted in the previous answer, the legal opinion protects the transfer agent and the issuing company from a charge of facilitating (aiding and abetting) a violation of the Securities Act of 1933 and the issuing company from loosing an exemption from registration when it originally sold the restricted stock. Therefore, transfer agents generally require a legal opinion.
How will I know if I am or the person from whom I purchased or am purchasing the stock in a private transaction is a controlling person?
You will probably know if you are a controlling person, or an “affiliate”, of the issuing company. Affiliation can arise either directly or indirectly through another company, partnership, estate or limited liability company that is an affiliate of the issuing company. In general, an affiliate is a person who has the ability, directly or indirectly, by stock ownership, contract or otherwise to control or influence the control of the issuing company. Obviously, affiliates include directors, officers and stockholders who own ten percent or more of the issuing company’s voting stock, but may include others. When you purchase stock privately, you should ask your seller if he or she is an affiliate of the issuing company.
Do I need to count stock my family or others own in the issuing company as stock I “own” for purposes of the 10% rule?
You will need to include any stock in the issuing company from which you benefit, directly or indirectly, This includes stock owned by your spouse, minor children and parents who lives in your home. You will also need include stock in the issuing company that is owned by any entity in which you or any of the persons covered by the preceding sentence has an affiliate relationship (see preceding answer) or in which any of you serve as trustee or executor or collectively have a ten percent or more beneficial interest.
What is the minimum time I need to own restricted stock before I can use Rule 144?
The length of time you have owned the stock is your “holding period”. Your holding period also includes the holding period of a predecessor owner, or series of predecessor owners, who were not affiliates of the issuing company at the time of each preceding sale – you can “tack” their collective holding periods to yours.
- If you are a non-affiliate of the issuing company, it has been filing reports with the Securities and Exchange Commission for at least ninety days and is current in those reports, your holding period must be at least six months,
- If you are a non-affiliate of the issuing company, it is not current in its reporting to the SEC or it is a non-reporting company or has been filing reports for less than ninety days (and not a shell or former shell company), your holding period must be at least one year,
- If you are an affiliate of the issuing company, then you must satisfy the same holding periods described in the previous two bullet points, but if a reporting company its reports must be current or if a non-reporting company it must provide current information to the public which satisfies Rule 15c2-11 under the Securities Exchange Act of 1934 via PinkSheets or another widely available medium.
What happens to my “holding period” when I buy or my predecessor owner(s) has purchased the stock from an affiliate of the issuing company?
The stock becomes “restricted” stock, even if it wasn’t restricted in the hands of the affiliate. And, the six or twelve month minimum “holding period” starts all over again for you at the time of the purchase from the affiliate, just like it would if the purchase was directly from the issuing company.
What happens to my “holding period” when I buy or someone before me (a predecessor owner(s)) has purchased the stock from a person who is not an affiliate of the issuing company?
The holding period for your stock begins at the date the first predecessor owner(s) who was not an affiliate of the issuing company purchased the stock from the issuing company or from an affiliate of the issuing company, whichever occurs later. In other words, you are permitted to “tack” your seller’s holding period to yours, including the holding period of any predecessor owner(s) who was not an affiliate of the issuing company.
If I have been an affiliate of the issuing company, but am not an affiliate now, do I still need to comply with Rule 144?
You must comply with Rule 144 for 90 days after you cease to be an affiliate of the issuing company.
If I buy my stock from an affiliate who later ceases being an affiliate, can I tack my seller’s holding period?
Your seller’s status at the date of your purchase is controlling. You must satisfy your new holding period requirement beginning on the date of your purchase. This may seem unfair, but that’s the way it works.
When can I get the restrictive legend removed from my stock certificate?
If you are not an affiliate of the issuing company, you can get the legend removed
- after you have a holding period of 6 months, if the issuing company files reports with the SEC and is current in its filings, or
- after 12 months, if the issuing company does not file reports with the SEC or is not current in its reporting obligation.
- This does not apply to companies who are now or ever have been shell companies, unless the issuing company is not now a shell company, has been filing reports with the SEC about its current business for at least 12 months and is current it its reporting obligations.
When does my holding period start for stock I receive in exercise of a “cashless option” or “cashless warrant”?
If you do not pay any cash, give property or provide services for the stock itself (even if you have paid for the option or warrant), your holding period begins on the date the cashless feature was first included in the option or warrant – when originally issued or by amendment. If you gave separate consideration for the amendment, then your holding period starts on the date of the amendment.
When does my holding period start for stock I received as a gift?
The holding period for your gift stock begins when your donor’s holding period began, even if your donor was an affiliate of the issuing company. In other words, you are permitted to “tack” your donor’s holding period to yours. If you donor was an affiliate of the issuing company, you must combine or aggregate your sales with your donor’s sales during six months after the gift for to determine the limit on the number of shares you both can sell under Rule 144.
When does a transfer of stock without payment qualify as a “gift”?
If the transfer does not satisfy a legal or “moral” obligation, is entirely voluntary and the relationship between you and your donor is such that a gift is a reasonable transfer for “love and affection”, then it should be considered a gift under Rule 144.
When does my holding period start for stock I have taken as a pledge to secure a loan?
If the loan is a real, full recourse loan that is in default, the same principals of “tacking” the holding period and aggregating sales that apply to gift stock also apply to pledged stock.
When does my holding period start for stock I received in payment for my services?
Your holding period starts when you have fully performed the services and are unconditionally entitled to receive and keep the stock. Some personal service contracts may provide that the stock compensation is fully earned when it is issued or at a specified date, even though services are still to be rendered. In these cases, your holding period starts on the contract date or specified date.
Is there a limit to the number of shares I can sell under Rule 144?
There is a limit only if you are an affiliate of the issuing company. In a three month period, you can sell only
- a maximum of one percent of the number issued and outstanding shares the issuing company has stated in its most recently published report – on the PinkSheets for non-reporting companies or in or in the SEC filing, or
- if the stock is traded on NASDAQ or an exchange, the average weekly trading volume for the full four week period preceding the date you file your Form 144 with the SEC, if it is higher than the one percent limitation.
The limit applies only to the stock you sell in reliance upon Rule 144, and does not include free trading stock you own or stock you sell under a registration statement, all of which could be sold simultaneously.
Is there a “blackout period” when I cannot use Rule 144 to sell stock?
An affiliate of the issuing company that does not have current information publicly available on PinkSheets or, if a reporting company, in its SEC filings may not use Rule 144. Non-affiliates of the issuing company that files reports with the SEC an is not current in its filings may not use Rule 144 between the sixth and the twelfth month of their holding period. Rule 144 may not be used to sell stock in a shell company or former shell company, unless the company has been filing reports with the SEC about its current, active business (not including a “shell company” business) f or more than twelve months and is current in its reports, regardless of the length of the holding period and the fact that the issuing company was not a shell company at the date the stock was purchased.
How can I find out if I am in a “blackout period”?
RULE144Solution.com will double check this for you, although you can do it yourself by checking the PinkSheets and the SEC filings, as described on the Select Opinion page.
How do I get an opinion from RULE144Solution.com?
Finally, an easy question. Just select and pay for the type of opinion you need. After paying for the opinion, you will download a form set in Adobe Acrobat tailored to your specific situation and save it to your own computer. However, several types of opinions (former shell company and resale of stock issued under Rule 504) require you to call RULE144Solution.com for a consultation to make sure you are eligible for an opinion and to determine the form set that applies to your situation. Call us at 813-892-5969.
What do I do after I get the RULE144Solution.com form set saved to my computer?
Complete the information in the interactive, auto-completing data fields. This usually takes less than 1/2 hour. Or e-mail the form set to your broker to complete for you. A form set contains all of the documents you need to get an opinion – including a fax transmittal, your letter and, for affiliates, the broker’s letter, a Form 144 and a Form 4. You and, for affiliates, your broker will need to sign some of the forms in the set before faxing them to RULE144Solution.com However, RULE144Solution.com accepts broker’s forms.
What information will I need to complete the form set?
You will want to have the following information available –
- If you are a non-affiliate of the issuing company, you will need a copy of your stock certificate – for the serial number, the number of shares and the issue date – and in some cases, the documentation that supports the date of your purchase.
- If you are an affiliate of the issuing company, you will need this same information and your broker will assist you with the additional information needed for Form 144.
Who should fax the completed forms in the set to RULE144Solution.com?
That depends on the type of opinion requested –
- for an affiliate of the issuing company, the broker or the broker’s clearing agent usually faxes the forms, and
- for a non-affiliate of the issuing company, you, your broker or your broker’s clearing agent can fax the forms.
Will Rule144Solution.com accept my broker’s forms instead of its own forms?
Rule144Solution.com will accept your broker’s standard representation letter in place of the letter in the form set. However, the broker’s form letter may not always suit the circumstances in your acquisition of the stock and must be redone after we review it. When the brokerage firm’s stockholder representation form letter is used, we frequently require additional information. These factors may slow down the issuance of your opinion.
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What else do I need to do?
If you are an affiliate of the issuing company, you will need to file a Form 144 (provided in the Rule144Solution.com form set), and perhaps a Form 4, by mailing a signed original and two copies to the SEC at the address on the form. Your broker may do this for you, so it is assured the Form 144 is filed. If you are a non-affiliate, you only need to submit your original stock certificate and a copy of RULE144Solution.com’s opinion letter to the transfer agent and pay the transfer agent’s issuance fee.
How long is the Form 144 good for?
For an affiliate of an issuing company, each Form 144 is good for three months from the filing date. If any “restricted stock” is not sold at the end of the three month period, it can be included in a new Form 144 filing (still limited to one percent of the issued and outstanding or average weekly trading volume, which ever is applicable). If not covered by a new filing, the unsold shares must be returned by the broker to the transfer agent for the reissue of new certificate with a restrictive legend.
What happens if I do not sell all the shares indicated on my Form 144 within the three months?
You must either file a new Form 144 (in which case you can add shares back up to the one percent level) or your broker will return the unsold shares to the transfer agent for the reissue of a certificate with a restrictive legend.