If you’re going to deal with stocks and the like, you will probably end up dealing with Rule 144 at some point. It is a regulation enforced by the SEC (Securities and Exchange Commission) that determines how securities can be resold or sold. It provides exemptions from registration requirements allows the securities to be sold through public markets when conditions are met. It applies to all sellers, as well as dealers, underwriters, and issuers of securities.
Breaking It Down
Rule 144 regulates any transactions with unregistered, restricted or control securities. They are usually acquired through private sales or a control stake from the issuing company. Investors can acquire these securities through stock benefit plans and private placements. However, the SEC prohibits the process of reselling of unregistered, control, and restricted securities unless they are registered prior to the sale or exempt from registration requirements (see below).
The Five Conditions For Resale
Restricted, control and unregistered securities can be sold and resold if they meet the five conditions for resale through Rule 144. The prescribed holding period has to be fulfilled, which is six months for a public company. The time starts from the date you purchase and pay for the security. If it is a private company (they don’t make filings to the SEC) the holding period is a year.
The second condition is that there has to be adequate public information available to investors about the company, which includes information about directors and officers, historic financial statements, and business descriptions.
The third condition is that when a selling party is affiliated with the company, they cannot resell more than one percent of the total shares during a three-month period.
Likewise, all normal trading conditions that apply to your trade have to be met, and affiliated sellers have to file a proposed sale notice if it exceeds $50,000 during the three-month period. Visit Colonial Stock Transfer Company for more information.
