Securities Law, NYSE, NASDAQ & OTC Markets Listings & Compliance

Rule 144 and 145: The SEC’s Favorite Party Poopers

When it comes to the resale of securities, few areas of securities law generate as much scrutiny as those involving shell companies. Investors and issuers alike must navigate complex restrictions under the Securities Act, particularly the interplay of Rule 144 and Rule 145.  We’ll walk through the resale restrictions under the Securities Act of 1933 (the “Securities Act”), focusing on Rule 144 and Rule 145. These rules set the stage for how securities of shell companies and former shell companies can be resold.  

Why All This Paperwork? 

The Securities Act says that every offer and sale of securities must be registered with the SEC, unless there’s an exemption. This applies not just when a company issues securities, but also when investors try to resell them.    

To remove a legend and sell stock, you need to provide documentation to a securities attorney, your broker, and the company’s transfer agent. The exact paperwork depends on several factors, including whether you are an affiliate (insider) of the company and how long you have held the stock.  

That’s where Rule 144 and Rule 145 come in. 

Rule 144: Hurry Up and Wait 

Rule 144 is the most commonly used exemption for resales of restricted and control securities. If you jump through the right hoops, you’re not treated as an “underwriter,” which means you can rely on the Section 4(a)(1) exemption and avoid full-blown registration. 

Here are the five hoops (a.k.a. requirements): 

1. Current Public Information (Rule 144(c)) – The issuer must have made enough information publicly available. Translation: investors shouldn’t have to feel like detectives to figure out what’s going on. 
2. Holding Period (Rule 144(d)) – Six months for reporting companies (if they’re up to date), or one year if not. In other words, patience is not just a virtue — it’s a rule. 
3. Volume Limitations (Rule 144(e)) – Affiliates can only sell limited amounts during any three-month period. For listed companies, it’s the greater of 1% of outstanding shares or the average weekly trading volume from the past four weeks. For OTC stocks, just 1%. No unloading your entire stake all at once — sorry, whales. 
4. Manner of Sale (Rule 144(f) & (g)) – Sales of equity must be made in brokers’ transactions, directly to market makers, or in riskless principal transactions. Basically: no back-alley deals. 
5. Notice of Sale (Rule 144(h)) – Affiliates selling more than 5,000 shares or $50,000 worth in any three-month period must file Form 144. Because the SEC likes paperwork almost as much as accountants do. 

Special Fun for Former Shell Companies 

Rule 144 comes with extra strings attached for former shell companies: 

• Rule 144 isn’t available until one year after the company files “Form 10 information” in a Super 8-K or Super 20-F. 

• The company must be current in all its SEC filings (the “SEC Reporting Rule”). If they slip up, Rule 144 goes dark until they catch up. 

Moral of the story: if you’re holding stock in a company that used to be a shell, Rule 144 is basically a probation officer. Miss a filing? No freedom to sell. 

Margin Loans: Rule 144 Meets Your Friendly Neighborhood Lender 

Margin loans add more wrinkles. If restricted or control securities are pledged as collateral, a lender who forecloses and wants to sell the stock must either register the sale or rely on Rule 144. 

Key points: 

• Lenders can “tack” the pledgor’s holding period onto their own under certain conditions (Rule 144(d)(3)(iv)). 

• If a reverse merger or acquisition just ended the shell status less than a year ago, public sales under Rule 144 are off the table. 

• Transfer agents won’t do blanket legend removals — each transaction must be reviewed. Translation: expect paperwork delays that feel longer than an SEC comment letter cycle. 

Rule 145: You’re Probably an Underwriter (Sorry About That) 

Rule 145 covers exchanges of securities in mergers, consolidations, reclassifications, or asset transfers that require shareholder approval. The rule treats those transactions as sales of securities. 

Here’s the kicker: if one of the parties is a shell company, Rule 145(c) automatically makes certain participants “presumptive underwriters.” In plain English: the SEC assumes you’re selling as part of a distribution, so you’ve got to follow resale restrictions. The only escape is registration or strict compliance with resale conditions. 

Why This Matters  

For investors and lenders, these rules can mean the difference between a smooth resale and a multi-year waiting game. Missteps can lead to regulatory headaches, blocked sales, or worse, SEC enforcement. 

Real-world example: Reverse mergers have historically been a quick way for private companies (sometimes dubious ones) to go public through shells. The SEC tightened Rule 144 access for former shell companies precisely to curb abuses in that space. If you remember the wave of questionable China-based reverse mergers in the late 2000s, you’ll know why the SEC put its foot down. 

Final Thoughts 

While Rule 144 and Rule 145 can seem like bureaucratic mazes, they’re designed to protect markets and investors. The key takeaway: if you’re holding restricted stock or involved in a merger with a shell company, don’t expect a quick flip.  

And hey, if nothing else, while you are waiting for the holding period to pass, you’ll have plenty of time to brush up on securities law by reading other articles on our blog =P.  

If you need an opinion letter to get the legend removed from restrictive stock you own or would like to speak with a Securities Attorney, Hamilton & Associates Law Group, P.A. is ready to help. Our Founder, Brenda Hamilton, is a nationally known and recognized securities attorney with over two decades of experience assisting issuers worldwide with going public on the Nasdaq, NYSE, and OTC Markets. Since 1998, Ms. Hamilton has been a leading voice in corporate and securities law, representing both domestic and international clients across diverse industries and jurisdictions. Whether you are taking your company public, raising capital, navigating regulatory challenges, or entering new markets, Brenda Hamilton and her team deliver the experience, strategic insight, and results-driven representation you need to succeed.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected].

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com