The Securities Act of 1933 (“Securities Act”) requires all sales of securities to be registered with the SEC, unless the transaction is exempt from registration.
Rule 144 Exemptions for Shareholders That are Not Issuers, Dealers or Underwriters
In general, there are provisions in securities law that allow stock sales to be exempt if the Seller is not an Issuer, Dealer, or Underwriter. Rule 144 is just one of those provisions. The term Issuer is self explanatory–this is the public company issuing the stock. Dealer is a “broker-dealer.” Most Shareholders do not have to wonder if they fall into those categories. But under the Securities Act, the term Underwriter does not have to be an investment banking firm–it can include those Shareholders that acquire stock from an Issuer “with a view to distribution.”
Rule 144 Allows a Safe Harbor for Shareholders
The clause “with a view to distribution” is where Rule 144 comes in. SEC Rule 144 allows Shareholders of restricted stock a “safe-harbor” from being treated as an Underwriter as long as the sale complies with all Rule 144 requirements.
Rule 144 Works Due to the Holding Period and Limitations on Affiliate Sales
This works primarily because Rule 144 requires certain holding periods before restricted stock can be sold by Shareholders, making a “distribution” less likely.
Rule 144 also works because Affiliates (Officers, Directors, Control Persons or Shareholders Who Beneficially Own Greater than 10%) who are closest to the Issuer, must file Form 144 whenever they sell securities, and are then subject to trading volume limitations.
Shareholders with questions regarding selling their restricted stock, removing restricted legends, or Rule 144 can contact securities lawyer Matt Stout at (410) 429-7076 or firstname.lastname@example.org.