Can a Rule 144 Opinion Be Issued without Documentation?

No.  An experienced securities attorney cannot issue a Rule 144 legal opinion or Section 4(a)(1) opinion letter without the Shareholder providing the documentation necessary to show the origin and history of the Shares. (If any documents are missing, an experienced Rule 144 lawyer can help confirm the transaction details by emails with the Issuer and Transfer Agent, when necessary.)

What Documents are Necessary for a Rule 144 or Section 4(a)(1) Legal Opinion?

The amount of shareholder documentation needed depends on whether or not the Issuer is an SEC filer and if the Shares are referenced in SEC filings or OTC Markets disclosure statements.

The best documentation in support of a Rule 144 legal opinion letter would be the Shareholder and the Shares referenced specifically in one or more SEC filings or OTC Markets filings.

If not, then the Shareholder can provide the following documents in support of a legal opinion letter issued under Rule 144 or Section 4(a)(1):

Documentation for Rule 144 Shares Issued Under Subscription Agreement

  1. A copy of the Subscription Agreement signed by the Shareholder and the Company;
  2. A copy of the Private Placement Memorandum (“PPM”), if available;
  3. A copy of the Investor Questionnaire or other correspondence that came with the Subscription Agreement, if available;
  4. A certificate or book entry confirmation from the Transfer Agent showing the Shares issued to the Shareholder; and
  5. Proof of Payment for the Shares, which is usually a check or wire transfer confirmation.

Documentation for Rule 144 Shares Issued for Services

  1. A copy of the Consulting Agreement or other contract showing the services to be performed and compensation; and
  2. Invoices or other correspondence documenting the services;
  3. Board Resolution or Issuance Instructions showing the Shares issued for services; and
  4. A certificate or book entry confirmation from the Transfer Agent showing the Shares issued to the Shareholder.

Documentation for Rule 144 Shares Due to Debt Conversion

  1. A copy of the Promissory Note;
  2. If the Note was issued as payment for services, then also provide the invoices or agreement demonstrating the services rendered to the Company;
  3. If the Note was issued for a loan, then also provide the check or wire transfer confirmation showing Proof of Payment;
  4. Conversion Notice showing the Date of Conversion;
  5. Board Resolution or Issuance Instructions showing the Shares, (if they have already been issued); and
  6. A certificate or book entry confirmation from the Transfer Agent showing the Shares issued to the Shareholder (if they Shares have already been issued).

Shareholders Can Contact Securities Attorney Matt Stout for questions about Rule 144 legal opinions and Section 4(a)(1) opinions any time.   Shareholders ready for a no cost review of their documentation can call (410) 429-7076 or send an email to mstout@otlawyers.com.

How Does Rule 144 Treat Stock Earned Under a Consulting Agreement?

Securities attorneys who have experience in drafting Rule 144 opinions often review Consulting Agreements under which services are performed in exchange for restricted stock in OTC Bulletin Board or OTC Markets public companies.

Consultants are Often Paid in Restricted Stock

Many OTC Bulletin Board or OTC Markets OTCQB, OTCQX or Pink Sheet Issuers use their restricted stock as a type of currency to hire professionals such as attorneys, accountants, and marketing or investor relations Consultants.  This makes sense from a balance sheet point of view, as it conserve cash and provides the Consultants with an incentive to help the Issuer, since if the stock price rises, in theory everyone benefits.

The Rule 144 Holding Period Begins When the Consultant’s Fee is Earned

Of the elements of Rule 144, the most important when dealing with a Consulting Agreement is determining the proper “holding period” for restricted stock paid to the Consultant.   Under SEC Rule 144, the holding period for restricted stock does not start until the securities have been fully paid for, or fully earned.

Rule 144 Holding Period for SEC Reporting Companies

SEC Reporting Companies such as OTC Bulletin Board (OTCBB), OTC Markets OTCQB, OTCQX and microcap Issuers listed on the NASDAQ or the NYSE MKT exchanges have a holding period of six (6) months.

Rule 144 Holding Period for OTC Markets Pink Sheets

Non Reporting Companies like OTC Markets Pink Sheets generally have a one (1) year holding period for restricted stock, though some would argue that if the Issuer is Pink Current, that it can be said to be fully reporting under the Alternative Reporting Standard.  Different broker-dealers and clearing firms have varying opinions on this.

Calculating When the Consultants Rule 144 Holding Period Starts

This sounds simple enough–calculate the Consultant’s holding period under Rule 144 from the day the shares were earned.   However, often Consulting Agreements are vague, and provide for a block of shares to be earned in exchange for services provided over a set period of years.

But at what point are all of the shares (or a portion thereof) earned?  Is it upon signing the Consulting Agreement….or only at the end of the term? Do the shares get prorated if the Consultant stops performing work before the term ends?

When there is ambiguity, a Rule 144 securities attorney needs to request Board Resolutions, and correspondence between the Issuer and the Consultant so that it is clear when the shares were earned, and when the Rule 144 holding period starts.

Consultants and OTC Issuers can assist securities lawyers drafting Rule 144 opinions by clearly stating in the Consulting Agreement when the shares are fully earned.

A Securities Lawyer Can Draft Consulting Agreements to Comply with Rule 144

Consultants who provide services to microcap public companies in exchange for restricted stock may contact securities lawyer Matt Stout with questions concerning Rule 144 at (410) 429-7076 or find more information on how to structure Consulting Agreements to comply with SEC Rule 144 at OTCLawyers.com.