Section 2.2: Rule 144 – Restricted and Control Securities

  • Rule 144 Overview

  • Restricted Securities:

  • Control Securities:

1. Rule 144 Overview

  • Part of the Securities Act of 1933.

  • Governs the resale of securities in two categories:

    1. Restricted securities – unregistered securities acquired outside a registered public offering.

    2. Control securities – registered securities owned by insiders (officers, directors, or >10% shareholders).

2. Restricted Securities

  • Acquired via private placements or other non-registered offerings.

  • Cannot be sold publicly until:

    • Held fully paid for 6 months (for non-reporting issuers, it can be longer).

  • Often have a restrictive legend on the certificate (also called legended shares).

  • Issuer must remove restriction before shares can be sold publicly.

  • Phrase used: “sale effectively registers the stock” after restrictions are lifted.

3. Control Securities

  • Owned by directors, officers, or affiliates (10%+ voting stock).

  • Spouse ownership counts toward the 10% threshold.

  • Selling requires Form 144, which:

    • Determines how many shares can be sold in a 90-day period.

  • Volume limits: Greater of

    1. 1% of outstanding shares, or

    2. Average weekly trading volume over the past 4 weeks.

144

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Comparison Table: Restricted vs Control Securities

Feature / Restricted Securities / Control Securities

  • Definition / Unregistered securities from private or non-registered offerings / Registered securities owned by insiders

  •  Holder / Regular investors / Directors, officers, or >10% shareholders

  • Sale Restrictions / Must hold 6 months (minimum), legend on certificate / Must file Form 144, limited by volume rules

  • Issuer Requirement / Must remove legend before sale / No legend; compliance via Form 144

  • Example / Private placement purchase / Officer selling shares they own

Next Section

✺ Review questions ✺

  • Restricted securities and control securities.

  • 6 months (if fully paid and the issuer is a reporting company).

  • A notation on the stock certificate indicating the shares cannot be sold until restrictions are lifted.

  • Directors, officers, or anyone owning or controlling 10% or more of voting stock (spouse counts).

  • Form 144.

  • The greater of 1% of outstanding shares or the average weekly trading volume over the past 4 weeks.

  • False – restricted securities cannot be sold immediately; they have holding requirements.