Rule 144 Restricted Securities and Non-Insiders

This blog explores how people who are not Company Insiders and who buy stock in private placements under Regulation D not registered with the SEC can resell the stock they purchase in the private placement. These same rules apply to any stock acquired by Non-Insiders, even if not in a Regulation D private placement, such as stock issued for compensation to Non-Insiders.

Rule 144, which governs resales of Restricted Securities by Non-Insiders, distinguishes between Restricted Securities in a company which files reports with the SEC, called a “Reporting Company,” and a company which does not file reports with the SEC, called a “Non-Reporting Company.”

Reporting Company

The longer a Non-Insider owns stock in and SEC Reporting Company, the less are the restrictions on resale, as follows:

  • Less than Six Months – A Non-Insider owning Restricted Securities for less than six months cannot resell the securities at all.
  • Six Months to One Year – A Non-Insider owning Restricted Securities for more than six months but less than one year can resell the securities with no limitations at all, provided that during this six month window, the Company files all of the reports it is required to file with the SEC.

Note: If the Company just becomes a Reporting Company by filing an SEC Registration Statement which clears the SEC during this six months to one year window, the Non-Insiders still cannot sell their Restricted Securities until 90 days after the SEC clears the Registration Statement.

More than One Year – No restrictions. All of the stock is now free trading.

Non-Reporting Company

The longer a Non-Insider owns stock in and Non-Reporting Company, the less are the restrictions on resale. However, the restrictions on resale for stock in a Non-Reporting Company are longer than those for a Reporting Company, as follows:

  • Less than Six Months – A Non-Insider owning Restricted Securities for less than six months cannot resell the securities at all
  • Six Months to One Year – A Non-Insider owning Restricted Securities for more than six months but less than one year still cannot resell the Restricted Securities.
  • More than One Year – No restrictions. All of the stock is now free trading even if the Company never filed a registration statement with the SEC.

One final note: If you are a Non-Insider who buys Restricted Securities, you will have to have an SEC lawyer, generally company counsel, write a legal opinion for you to send to the brokers and transfer agents involved in the sale stating that the provisions of Rule 144 have been met and the stock is now “free trading,” meaning it can be resold without any restrictions under federal securities laws.

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