How Rule 144 Applies to Companies

Rule 144 is one of many exemptions that allow others to resell unregistered securities from the stock market. In most cases, reselling such securities are illegal in the U.S. However, this regulation has strict rules that must be followed by the shareholder so that they can sell controlled, restricted, or unregistered securities publicly.

For one, the security, such as bonds, equities, and stock, must be registered with the SEC, otherwise known as the Securities and Exchange Commission. Any security that isn’t registered or is labeled controlled or restricted cannot be sold/resold to the public market unless this rule applies.

Key Terms

There are many essential terms that you should understand before considering Rule 144, including:

  • Securities registration requires you to file documents with SEC before you can offer the security for sale. You have to include information about your company and the security.
  • Unregistered securities are sometimes called restricted securities or stock. They aren’t registered with the Securities and Exchange Commission. They can be issued through Regulation D offerings, private transactions, or employee stock programs and have different risks and less protection for investors.
  • Restricted securities are sometimes called letter stock, section 1244 stock or restricted stock. They are non-transferable and unregistered shares within a corporation. They are usually provided to directors, corporate executives, and investors, as well as others.
  • Control securities are held by affiliates of the business which issued those securities. Once you purchase them, they are restricted, even if they aren’t restricted for the affiliate.

Why It’s Important

Many people own control or restricted securities, including small business owners, investors, and employees. They can be given to people as part of a benefits package, as compensation for services, and when you help others with start-up capital. Rule 144 is essential because it allows you to sell the securities on the stock market without having to register them through the SEC first. Visit Colonial Stock Transfer for more information.

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