Rule 144: Selling Restricted and Control Stock

Rule 144 is the SEC’s resale safe harbor for selling restricted and control stock in the public market without registration. It is not automatic, not the only exemption, and not a private-company trading venue. Conditions depend on affiliate status, holding period, and whether the issuer files Exchange Act reports.

This is a mechanics page. It is not investment, legal, or tax advice, not a recommendation to sell, and not an offer or solicitation. The rule text is 17 CFR 230.144. The SEC’s investor overview is Rule 144: Selling Restricted and Control Securities. Private-company transfers still run on company documents; employees should start with how to sell private company shares as an employee.

Restricted securities vs control securities

The SEC splits the two. See also the SEC’s restricted securities note.

Restricted securities are acquired in unregistered, private sales from the issuer or from an affiliate of the issuer. The SEC lists private placements, Regulation D offerings, employee stock benefit plans, compensation for professional services, and seed capital as typical sources. Rule 144(a)(3) is the definition. These positions almost always carry a restrictive legend.

Control securities are securities held by an affiliate of the issuer. The SEC describes an affiliate as a person — such as an executive officer, a director, or a large shareholder — in a relationship of control with the issuer. Control means the power to direct management and policies, whether through voting securities, contract, or otherwise. Certificates for control securities usually are not stamped with a legend. If you buy securities from an affiliate, you take restricted securities even if they were not restricted in the affiliate’s hands.

Rule 144 is a safe harbor, not an exclusive path. Failing its conditions does not make another exemption unavailable. It also does not override a private company’s right of first refusal.

The five conditions, in the order the SEC lists them

The SEC’s Rule 144 overview summarizes five conditions. Affiliates generally meet all of them (plus the holding period if the stock is restricted). Non-affiliates get a shorter list, in the table below.

1. Holding period (restricted securities only)

Before you may sell restricted securities in the marketplace, you must hold them for a stated time. The SEC’s overview:

• If the issuer is a “reporting company” subject to the reporting requirements of the Securities Exchange Act of 1934, you must hold the securities for at least six months.

• If the issuer is not subject to those reporting requirements, you must hold them for at least one year.

The SEC’s small-entity compliance guide on the 2008 amendments is more precise on who gets the six-month clock: the issuer must have been subject to Exchange Act Section 13 or 15(d) reporting for at least 90 days. Restricted securities of issuers that are not Exchange Act reporting companies must be held one year before any public resale. (See Revisions to Rules 144 and 145.)

The holding period begins when the securities were bought and fully paid for. It applies only to restricted securities. An affiliate who bought securities in the public market has no Rule 144 holding period on those shares, but the resale is still subject to the other Rule 144 conditions because they are control securities.

Other holding-period mechanics the SEC’s overview states:

• Additional purchases from the issuer do not reset the holding period on previously purchased securities of the same class.

• Restricted securities purchased from another non-affiliate: you can tack that non-affiliate’s holding period onto yours.

• Gifts by an affiliate: the clock starts when the affiliate acquired the securities, not on the gift date.

• Stock options, including employee stock options: the clock starts on the date the option is exercised, not the grant date.

Most private companies are not Exchange Act reporting companies. For those issuers the Rule 144 holding period is one year — and even then Rule 144 is a public-resale safe harbor, not a private-transfer permission slip.

2. Current public information

There must be adequate current information about the issuer publicly available before the sale. For reporting companies, the SEC says this generally means compliance with Exchange Act periodic reporting. For non-reporting companies, certain information must be publicly available, including the nature of the business, the identity of officers and directors, and financial statements.

Non-affiliates of reporting issuers who have held between six months and one year still have to meet this condition. After one year, a non-affiliate is off the Rule 144 condition list (see the table).

3. Trading volume formula (affiliates)

If you are an affiliate, the number of equity securities you may sell during any three-month period cannot exceed the greater of:

• 1% of the outstanding shares of the same class being sold, or

• if the class is listed on a stock exchange, the greater of that 1% and the average reported weekly trading volume during the four weeks preceding the filing of a notice of sale on Form 144.

Over-the-counter stocks, including those quoted on the OTC Bulletin Board and the Pink Sheets, can only be sold using the 1% measurement. That is the SEC overview’s language. Private companies have no listed tape, so this formula is not what clears an employee secondary in a still-private issuer.

4. Ordinary brokerage transactions (affiliates)

Affiliate sales must be handled as routine trading transactions. Brokers may not receive more than a normal commission. Neither the seller nor the broker can solicit orders to buy the securities.

5. Form 144 (affiliates)

If you are an affiliate, you must file a notice with the SEC on Form 144 if the sale involves more than 5,000 shares or the aggregate dollar amount is greater than $50,000 in any three-month period. The SEC’s 2008 amendments guide states that the Commission raised the Form 144 thresholds to those figures and that non-affiliates no longer need to file Form 144.

Affiliate vs non-affiliate (restricted stock)

The SEC’s revisions guide puts the current safe harbor in one chart. Adapted from that source:

“Unlimited” here means unlimited under Rule 144’s remaining conditions — not that lockup, ROFR, or legend process disappeared. Affiliate status is a facts-and-circumstances control test. Officers, directors, and large shareholders are the SEC’s examples. Rank-and-file employees are typically non-affiliates. Typically, not always. That determination is counsel’s.

Legend removal

Even if every Rule 144 condition is met, the SEC says you cannot sell restricted securities to the public until the legend is removed. Only a transfer agent can remove it, and only with the issuer’s consent, usually an opinion letter from the issuer’s counsel. The SEC will not intervene in a legend dispute. Removal is in the issuer’s discretion; disputes are a matter of state law. Contact the issuer or its transfer agent. This is the same bottleneck described on the employee-sale path.

What Rule 144 does not do for a still-private company

Rule 144 does not create a marketplace in unregistered private-company common, replace the stockholder agreement, or let an employee skip ROFR because six months or one year has passed.

Where it does show up in secondaries work:

• Clock-start on employee options. Exercise date, not grant date, per the SEC overview.

• Tacking. A non-affiliate buyer of restricted stock from a non-affiliate seller may tack the seller’s holding period.

• Post-IPO affiliate sales. After a reporting issuer has been public long enough, affiliates sell under the volume, manner-of-sale, information, and Form 144 conditions.

• Secondary SPV inventory. A secondary SPV that buys employee or early-investor stock is taking restricted securities. The vehicle’s holding period and any later public resale sit on top of the private transfer the company has to approve. Formation mechanics are in the secondary SPV complete guide; the same consent issues show up in late-stage and secondary investments and in how to set up an SPV.

Allocations operates secondaries through Allocations Securities, LLC dba AllocationsX, member FINRA/SIPC. That does not change Rule 144, and it is not an offer of any security.

Compliance

This article summarizes SEC publications and is not a substitute for 17 CFR 230.144 or for counsel. It is not an offer to sell or a solicitation of an offer to buy securities, and not investment, legal, or tax advice. Private-company shares are restricted. Company documents and counsel control transfers.

FAQs

What is the Rule 144 holding period?

Six months if the issuer has been an Exchange Act reporting company for at least 90 days; one year if it has not. The clock starts when the securities are fully paid for. Employee stock options: exercise date, not grant date. Sources: SEC Rule 144 overview and SEC Revisions to Rules 144 and 145.

Who has to file Form 144?

Affiliates, when proposed Rule 144 sales in a three-month period exceed 5,000 shares or $50,000. Non-affiliates no longer need to file Form 144, per the SEC’s revisions guide.

Do non-affiliates have volume limits?

Not under Rule 144 after the applicable holding period (and, between six months and one year for reporting issuers, current public information). Affiliates stay on the three-month volume formula.

Does meeting Rule 144 let me sell private-company shares without company consent?

No. Legend removal requires issuer consent. Private-company ROFR, co-sale, and consent provisions are contract rights. See how to sell private company shares as an employee.

Is Rule 144 the only way to resell restricted stock?

No. The SEC’s overview states the rule is not the exclusive means for selling restricted or control securities. Other exemptions may exist. That is a counsel analysis.