Rule 144 Checklist Securities Lawyer 101- Go Public Blog

The Securities Act of 1933, as amended (the Securities Act) requires the sale of a security to be registered under the Securities Act, unless the security or transaction qualifies for an exemption from registration. Rule 144 of the Securities Act provides a safe harbor that permits holders of restricted securities to resell their securities in the public market if specific conditions are met. In order to remove the legend from certificates representing shares being resold in reliance upon Rule 144, an opinion from an SEC attorney is required.

Rule 144 also applies to the public sale of any securities held by directors, executive officers and other affiliates of the issuer. Rule 144 is potentially available for the resale of two types of securities: restricted and control securities. A security can be both a restricted and a control security. Rule 144 imposes a holding period only on restricted securities. Restricted securities are securities acquired from an issuer, or an affiliate of an issuer, in a transaction or chain of transactions that does not involve a public offering. Shareholders of issuers who go public direct and undertake direct public offerings and those who pursue reverse mergers with public shells often hold shares subject to Rule 144.

Control securities are owned by a person who qualifies as an affiliate of the issuer. An affiliate is a person that controls, is controlled by or is under common control with the issuer. Although the SEC has not set a standard for determining whether a person is an affiliate, affiliates generally include directors, executive officers and major shareholders that can exercise influence over the company individually or by acting with others.

Rule 144 is not available for the resale of securities that were initially issued by either reporting or non-reporting shell companies (other than a business combination related shell company) or an issuer that has at any time previously been a reporting or non-reporting shell company, unless the issuer meets specified conditions. A security holder may resell securities pursuant to Rule 144s safe harbor only if the following conditions are met:
a) The issuer of securities that was formerly a reporting or non-reporting shell company has ceased to be a shell;
b) The issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
c) The issuer of the securities has filed all reports and material required to be filed under Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for a such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
d) At least one year has elapsed from the time the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.

The chart below summarizes the requirements for sales of securities in reliance upon Rule 144 for issuers that have never been a shell company.

Reporting Issuer Restricted Securities

Affiliate or Person Selling on Behalf of an Affiliate

Non-Affiliate (and Has Not Been an Affiliate During the Prior Three Months)

During six-month holding period
No resales permitted.After six-month holding period
Resales in accordance with all Rule 144 requirements including:
Current public information,
Volume limitations,
Manner of sale requirements for equity securities, and
Filing of Form 144.

During six-month holding period
No resales of securities under Rule 144 permitted.After six-month holding period but prior to one year
Unlimited public resales permitted except that the current public information requirement applies.After one-year holding period
Unlimited public resales of securities; need not comply with any other Rule 144 requirements including current public information.

Non-Reporting Issuer

During one-year holding period
Resales are not permitted.

During one-year holding period
Resales are not permitted.

Restricted Securities

After one-year holding period
Resales in accordance with all Rule 144 requirements, including:
Current public information,
Volume limitations,
Manner of sale requirements for equity securities, and
Filing of Form 144.

After one-year holding period
Unlimited public resales permitted and need not comply with any other Rule 144 requirements.

This memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings.