Rule 144 Restricted Securities And Insiders

By Author: Michael Williams
Total Articles: 6
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This article explores how people who are Company Insiders can resell their stock. Unlike Non-Insiders, Restricted Stock owned by Company Insiders is never fully free trading. But as with Non-Insider resales, Rule 144, which governs resales of Restricted Securities by Insiders, also distinguishes between Restricted Securities in a company which files reports with the SEC, called a “Reporting Company,” and a company which does not file reports with the SEC, called a “Non-Reporting Company” for resales by Company insiders.

First, let’s be clear about who is a Company Insider. A Company insider is a Company officer or director. It is also a Company Affiliate, meaning for sure anyone owning more than 10% of a Company’s common stock. But you have to be careful because in some cases persons who aren’t officers, directors or 10% stockholders can still be insiders? How? If they sell at the direction of a Company insider. Or if they otherwise control the company, for example a lender with less than 10% of the stock but who has the right to appoint a board members. If you are uncertain whether or not you ...
... are an Affiliate, you need to consult an SEC attorney for further clarification.

Reporting Company

The longer an Insider owns stock in and SEC Reporting Company, the less are the restrictions on resale, as follows:

Less than Six Months – An Insider owning Restricted Securities for less than six months cannot resell the securities at all.

More than Six Months – An Insider owning Restricted Securities for more than six months can resell the securities but only all of the following conditions are met:

• Current public information: The Company must have been an SEC Reporting Company for at least 90 days prior to the date of sale and must be current in filing all required SEC Reports.
• Volume limitations: Insiders are limited to selling no more than 1% of the total issued and outstanding securities of the company during any 90 day period. Remember, that’s 1% of all issued and outstanding stock of the Company, not 1% of the stock owned by the Insider.
• Manner of sale requirements: Insiders cannot sell privately but only through a broker, on the market, at market price, in an unsolicited transaction.
• Filing of Form 144 under certain circumstances: If the amount of securities to be sold in reliance upon Rule 144 by an Insider during any period of three months exceeds 5,000 shares or other units or has an aggregate sale price in excess of $ 50,000.

Note: If the Company just becomes a Reporting Company by filing an SEC Registration Statement which clears the SEC during this six months to one year window, the Non-Insiders still cannot sell their Restricted Securities until 90 days after the SEC clears the Registration Statement.

Note: Unlike Non-Insiders, these restrictions never disappear. Thus, although Non-Insiders owning Restricted Securities in an SEC Reporting Company for More than One Year can resell with no restrictions, Insiders can never sell with no restrictions.

Non-Reporting Company

The longer an Insider owns stock in and Non-Reporting Company, the less are the restrictions on resale, but absolute prohibitions on resale apply for a longer time, as follows:

Less than Twelve Months – An Insider owning Restricted Securities for less than twelve months cannot resell the securities at all.

More than Twelve Months – An Insider owning Restricted Securities for more than six months can resell the securities but only all of the following conditions are met:

• Current public information: This is a little trickier as the Company does not file SEC reports. Unless the Company has current what is called 15(c)2-11 information on file with FINRA, no resales may be possible. Even then, it’s problematic.
• Volume limitations: Insiders are limited to selling no more than 1% of the total issued and outstanding securities of the company during any 90 day period. Remember, that’s 1% of all issued and outstanding stock of the Company, not 1% of the stock owned by the Insider.
• Manner of sale requirements: Insiders cannot sell privately but only through a broker, on the market, at market price, in an unsolicited transaction.
• Filing of Form 144 under certain circumstances: If the amount of securities to be sold in reliance upon Rule 144 by an Insider during any period of three months exceeds 5,000 shares or other units or has an aggregate sale price in excess of $ 50,000.

Note: Unlike Non-Insiders, these restrictions never disappear for Non-Reporting Companies, either. Thus, although Non-Insiders owning Restricted Securities in a Non- Reporting Company for more than one year can resell with no restrictions, Insiders can never sell with no restrictions.

One final note for Insiders: Be careful because you cannot sell if you are in possession of inside information. If you are a 1934 Act reporting company, any buys and sells within a six month period may also cause problems. Make sure you discuss these additional issues with your SEC Counsel before you sell any of your Restricted Securities.

Remember, you can Go Public Direct without a Reverse IPO reverse merger with public shell and save your company money and heartache. So if you are considering going public, get advice from an experienced SEC lawyer who knows the ins and outs of the entire process and can take a private company public directly without a Reverse IPO reverse merger with public shell.

This article, which does not constitute legal advice, was written for information purposes only by Michael T. Williams, Esq., an experienced SEC attorney of the Williams Securities Law Firm, P.A., Tampa FL, whose practice is primarily focused on taking companies public.