How to Sell Stock in a Former Shell Company Under Rule 144

Shareholders of Current Shells Cannot Use Rule 144 to Clear Stock

Most shareholders already know restricted stock cannot be cleared under SEC Rule 144 if the Issuer is currently a “shell company.”

An Issuer’s Past Shell Status Does Affect How Rule 144 is Applied

Shareholders holding restricted stock in OTC Bulletin Board (OTCBB) and OTC Markets OTCQB and Pink Sheet companies often wonder if the former “shell status” of the Issuer will affect the free trading status of their shares under Rule 144.

Rule 144 Requires Issuers to Be Fully Reporting For 1 Year

Yes, the Issuer’s former shell status is always important when a securities lawyer performs due diligence prior to drafting a Rule 144 opinion letter.

SEC Reporting Companies Have to Be Fully Reporting for 12 Months

This is because Rule 144 requires the Issuer to file all required SEC reports (10-Q, 10-K and 8-K) for at least 12 months after ceasing to be a shell before a shareholder can clear stock under Rule 144, even if all other requirements are met.

Pink Sheets Have to Be Fully Reporting for 1 Year Following Shell Status

OTC Pink Sheets, which do not report to the SEC, must file all of their Quarterly, Annual and Information and Disclosure Statements with OTC Markets for 1 year after ceasing to be a shell before Rule 144 can be used by a Shareholder to clear restricted stock.

144 Opinions Require Detail Regarding Past Shell Status

Rule 144 Opinions drafted by experienced securities lawyers like Matt Stout always go into detail to document the assets and operations in former shell companies.

It is important to demonstrate clearly that the Issuer ceased to be a “shell company” on a certain date, and to show that the proper post-shell reporting has remained current for the required amount of time.

Shareholders holding restricted stock in current or former shell companies can contact Matheau J. W. Stout, securities attorney at (410) 429-7076 with questions and find more information on OTCLawyers.com.

How Long Before Former Affiliates Can Sell Stock Under Rule 144?

When Can Former Affiliates Sell 144 Stock Without Trading Volume Limits?

Under Rule 144, an ex officer, director, or “control person” of a publicly traded company can sell shares without the trading volume limits after more than than 90 days have elapsed since he or she stopped being an Affiliate.

How Does Someone Cease to Be an Affiliate Under Rule 144?

An Affiliate becomes a “Non Affiliate” by resigning from positions of control within the company.  This means he or she resigns as an officer or director.

Of course, Shareholders who own more than 10% of a company’s voting stock are also considered Affiliates under Rule 144, and this status ceases once they have transferred enough stock such that they own less than 10%.

Affiliates Can Document Non Affiliate Status Under Rule 144 With These Documents

  1. This provides the date when the Affiliate resigned….A Letter of Resignation from the position as officer or director;
  2. This shows the Company acknowledged the resignation….A Board of Director’s Resolution accepting the resignation and appointing another officer or director in the Affiliate’s place;
  3. This shows that the information was made public….An OTCMarkets.com or SEC filing such as an 8-Ks or Disclosure that lists the date of the Affiliate’s resignation;
  4. This shows when a Shareholder first owned less than 10%….a stock purchase agreement, stock assignment, or a portion of the Transfer Agent’s shareholder’s list showing when the former Affiliate’s ownership percentage dropped below 10%.  This could be due to issuances of stock to others, which raised the issued and outstanding, or due to the former Affiliate’s sale or gift of stock.

Current and former Affiliates can contact securities attorney Matheau J. W. Stout at mstout@otclawyers.com or (410) 429-7076 to discuss how to document non affiliate status under SEC Rule 144.