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

Rule 144 Resales of Restricted Securities of Shell Companies and Former Shell Companies

Under Rule 405 and Rule 12b-2 of the Securities Exchange Act, a ‘shell company’ is defined as a company with no or nominal operations and no or nominal assets other than cash or cash equivalents. This classification is subject to significant resale restrictions under Rule 144(i) of the Securities Act of 1933. This article explains when and how securities of SEC reporting and non-reporting shell companies may be resold, and provides direct links to authoritative SEC sources and related articles on SecuritiesLawyer101.com.

Rule 144(i): The Restriction on Shell Company Resales

Rule 144 is unavailable for securities initially issued by a shell company or a company that has ever been a shell. Resales under Rule 144 may occur only when the issuer: (1) is no longer a shell, (2) is subject to Exchange Act reporting requirements, (3) has filed all required reports (excluding Form 8-K) for 12 consecutive months, and (4) has filed Form 10-type information at least one year earlier. See SEC Release No. 33-8869.

Reporting Shell Companies

While the issuer remains a shell, Rule 144 cannot be used. Shareholders seeking liquidity may pursue resales under Section 4(a)(1), Rule 144A to Qualified Institutional Buyers, Section 4(a)(7) to accredited investors, Regulation S for offshore resales, or through a resale registration statement. Once the issuer meets the four ‘former shell’ conditions of Rule 144(i)(2), resales under Rule 144 become available subject to all other requirements. More details: https://www.securitieslawyer101.com/2023/rule-144-shell-companies/

Non-Reporting Shell Companies

Non-reporting shells face even greater restrictions because they must first become Exchange Act reporting before Rule 144 can apply. Until then, shareholders may rely on Rule 144A, Regulation S, or Section 4(a)(7). Once the company becomes a ‘former shell’ under Rule 144(i)(2), non-affiliates may sell under Rule 144 after satisfying the six-month or one-year holding period. See SEC Rule 144 Interpretations.

Business-Combination-Related Shell Companies

Rule 144(i) does not apply to business-combination-related shell companies, such as SPACs formed for mergers or acquisitions, provided the combination has been completed and the resulting issuer is fully reporting and current. Learn more about SPACs and shell company transactions at https://www.securitieslawyer101.com/spac/.

Practical Compliance Steps

Transfer agents will not remove restrictive legends without a valid legal opinion confirming that Rule 144 or another exemption applies. Issuer counsel, brokers, and sellers must coordinate to ensure compliance with holding periods, current information requirements, and proper documentation. For guidance on legend removal, see https://www.securitieslawyer101.com/2023/legend-removal/.

Conclusion

For shell and former shell companies, public resales under Rule 144 remain prohibited until the issuer fully satisfies the Rule 144(i)(2) conditions. Until then, shareholders may rely on private resale exemptions such as Rule 144A, Section 4(a)(7), or Regulation S. After seasoning as a former shell, Rule 144 becomes available for compliant resales. For full details, refer to the SEC’s small entity compliance guide at https://www.sec.gov/resources-small-businesses/small-business-compliance-guides/revisions-rules-144-145.

If you have questions about Rule 144 resales of restricted securities of shell companies and former shell companies 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