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.

What is a Blank Check Shell?

OTC Markets microcap companies are often former shells.   Unfortunately for their shareholders, Rule 144 opinion letters cannot be used to clear stock for former blank check shells unless the Issuer is an SEC filer and meets the requirements of the Evergreen Rule.

However, an experienced securities lawyer may have other options under Section 4(a)(1).

A blank check company or “blank check shell” is a development stage company that has

  1. no specific business plan or purpose or
  2. has indicated its business plan is to engage in a merger or acquisition with an unidentified company.

These blank check companies are also commonly known as “419 shells”  or “Form 10 shells.”

The Evergreen Rule in Layman’s Terms

Even once these companies do merge with an operating business, they are forever known as “former shells” and Rule 144 opinions can only be issued under certain circumstances under the “Evergreen Rule.”

The Evergreen Rule basically means that unless an Issuer is an SEC filer, and has filed “Form 10 Information” including audited financials for one year post shell status, and is current in its SEC filings, Rule 144 can never be used.  As soon as a former shell becomes delinquent in its SEC filings, Rule 144 is not an option.

Unless the Evergreen Rule is satisfied, the SEC does not allow shareholders of former 419 shells to use use Rule 144 as an exemption from the registration requirements when selling stock.

Section 4(a)(1) May Be Used to Clear Stock of Former Shells

A Section 4(a)(1) legal opinion may be possible if the securities are greater than 2 years old and the Shareholder is not an underwriter or dealer.

A microcap securities attorney familiar with issuing legal opinions for former shells under Section 4(a)(1) can review your documents at no cost to determine if this alternative to Rule 144 can be used.

 

When is Section 4(1) an Alternative to Rule 144?

Shareholders in OTC microcap public companies seeking legal opinions are not always able to clear stock under Rule 144.

Rule 144 is not available if the Issuer is a shell company.

The SEC defines a shell company as an Issuer which has

  1. Nominal operations;
  2. Assets consisting solely of cash and cash equivalents; or 
  3. Assets consisting of any amount of cash and cash equivalents and nominal other assets.

Rule 144 is not available if the Issuer is a non-reporting former shell.

Under the Evergreen Rule, a former shell cannot use Rule 144 to clear stock unless it becomes an SEC filer (by filing Form 10 information and becoming subject to the reporting requirements of the Securities Exchange Act of 1934).   The Issuer must also have filed SEC reports for the prior 12 months and be current in those filings.

Section 4(1) can be used by both current and former shell companies.

In contrast to Rule 144, shareholders holding restricted stock in current shell companies and former shells may be able to use Section 4(1) to clear their stock.

Section 4(1) may be available if

  1. The holding period is greater than Two (2) Years.  This is twice as long as required for non reporting companies under Rule 144;
  2. The shareholder is not an underwriter or dealer.   Unlike Rule 144, Affiliates cannot use Section 4(1) to clear restricted stock.