Control and restricted securities: SEC Rule 144

Two classifications, two questions

SEC Rule 144 provides a safe harbor from underwriter status for qualifying resales. It is not an exclusive route to an exemption and does not protect a plan to evade registration.

Restricted securities concern acquisition history: they include securities acquired from an issuer or affiliate in a transaction not involving a public offering, such as a private placement. Control securities concern the holder: they are held by an affiliate, a person controlling, controlled by, or under common control with the issuer.

An affiliate's public-market purchases may be control securities without being restricted. A nonaffiliate may own restricted securities. Shares can be both.

Holding periods and nonaffiliates

For restricted securities, the minimum holding period is six months if the issuer has been subject to the relevant Exchange Act reporting requirements for at least 90 days immediately before sale. Otherwise it is one year. For purchases, the clock starts only when the full price or other consideration is paid or given. Shares received in a stock split retain the original shares' acquisition date.

A qualifying nonaffiliate is not an affiliate at sale and has not been one during the preceding three months. For a qualifying reporting issuer, restricted shares held six months to less than one year remain subject to current public information requirements. After one year, that condition no longer applies to this nonaffiliate. Restricted shares of a nonreporting issuer generally require one year for this route.

Affiliate resales

Affiliates face additional conditions, including current public information, volume limits, equity manner of sale requirements, and Form 144 notice requirements when applicable. The restricted-security holding period does not arise merely from affiliate status. Filing a notice does not replace compliance with other conditions.

These are the ordinary resale framework; special issuer and transaction provisions can affect availability. Solve questions by separating acquisition history, affiliate status, reporting status, and elapsed holding time.