Rule 144 Legal Opinion Checklist l Securities Lawyer 101
Securities Lawyer 101 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. Most often shareholders rely on Rule 144 in going public transactions when holding shares that are not subject to an effective registration statement such as on Form S-1.
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 purchase shares in Regulation D offerings that are 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 144’s 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.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post 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. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855