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Rule 144, 101: Explaining The Most Common Securities Exception


There are several types of securities sold on the U.S. market, including restricted and control. Control (not ‘controlled’) securities are those held by an affiliate of the company, while restricted securities are most often offered to investors via private sales. Neither restricted nor control securities can be resold in the U.S. unless they are either registered or they meet an exception – Rule 144 is by far the most common exception in federal securities law.

Five Criteria

Rule 144 is described as the ‘safe harbor’ exemption for prospective sellers. It establishes certain criteria that must be met before restricted or control securities can be sold in the United States. Some of the requirements only apply to affiliates of the seller, while some apply to both affiliates and non-affiliates. The two universal requirements (except in rare instances) are:

  • Holding period. Once the securities are fully paid for, you must retain them for a certain period of time – between 6 months and 1 year, depending on the nature of the company that issued the securities; and
  • There must be “adequate public information” available about the securities’ issuing company before any sale. “Adequate” information usually just means that the company has complied with the relevant requirements of the Securities Exchange Act of 1934, but in some cases, more may be required.

The requirements that only apply to affiliates of the issuer are:

  • The sales must be concluded as standard transactions, with no special favors or solicitation of any kind from affiliate to broker;
  • The sale of “equity” securities can only make up a certain small percentage of an affiliate’s sales in each three-month period – usually 1 percent or less; and
  • If the sale will involve more than 5,000 shares or a total dollar amount of more than $50,000 in a three-month period, the affiliate must file a Notice of Proposed Sale with the Securities & Exchange Commission (SEC).

One More Step For Restricted Securities

If these criteria are met, control securities can generally be sold. However, there is often an extra step with restricted securities, and that is removing the ‘restricted’ legend that is usually stamped upon them. A transfer agent can usually remove the legend if the securities otherwise qualify for a Rule 144 exemption and the issuer consents.

Call A Florida Securities Law Attorney 

Securities law is a complex subject, with several exceptions to seemingly every rule. If you have questions or concerns, a Seminole securities law attorney from the Hunt Law Group can try to assist. Contact us today to schedule a consultation.



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