Rule 144
Also called: Rule 144 safe harbor, 144 sale, restricted stock resale
The SEC safe harbor that lets holders publicly resell restricted or control securities without registration once conditions such as a holding period are met.
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What it covers
Shares bought in a private placement, issued in an acquisition, or received as compensation are usually restricted securities: they cannot be resold publicly without registration or an exemption. Rule 144 is the main exemption. It also governs sales by affiliates (officers, directors and controlling holders), whose shares are "control securities" even if bought in the market.
The main conditions
- Holding period for restricted securities: six months if the company has been an SEC reporting company for at least 90 days and is current in its filings; one year otherwise.
- For non-affiliates: after the holding period they can generally sell freely (between six months and one year, only while the company is current in its reports).
- For affiliates: sales in any three months are capped at the greater of 1% of the shares outstanding or the average weekly trading volume over the prior four weeks; manner-of-sale rules apply to equity; and a Form 144 notice is required if sales in three months exceed 5,000 shares or $50,000.
- Shell companies: Rule 144 is generally unavailable for securities of a shell or former shell until specific conditions are met.
Worked example
Hypothetical: a fund buys 3,000,000 unregistered Company X shares in a PIPE on January 10. Company X is a current reporting company and no resale registration is filed. From July 10, as a non-affiliate, the fund can generally rely on Rule 144 to sell those shares publicly.
Why it matters
Rule 144 sets the date when restricted shares can reach the market even without an S-1 resale registration. Some deals add a contractual leak-out or lockup on top.
How to spot it
Form 144 filings on EDGAR show proposed affiliate sales. Restricted share issuances appear in 8-K Item 3.02 and the equity footnotes. See Form 144.
Related terms
Guides that use this term
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Form 144 Explained: Notice of Proposed Sale by Affiliates
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