Restricted Stock: Rule 144

When you acquire restricted securities or hold control securities, you must find an exemption from the SEC's registration requirements to sell them in the marketplace. Rule 144 allows public resale of restricted and control securities if a number of conditions are met. Your William Blair & Company advisor can help you through the process of selling your restricted stock.

Securities

Restricted Securities
Restricted securities are securities acquired in unregistered, private sales from the issuer or from an affiliate of the issuer. Investors typically receive restricted securities through private placement offerings, Regulation D offerings, employee stock benefit plans, as compensation for professional services, or in exchange for providing "seed money" or start-up capital to the company.

Control Securities
Control securities are those held by an affiliate of the issuing company. An affiliate is a person, such as a director or large shareholder (10% or more), in a relationship of control with the issuer. Control means the power to direct the management and policies of the company in question, whether through the ownership of voting securities, by contract, or otherwise.

If you acquire restricted securities, you almost always will receive a certificate stamped with a "restricted" legend. The legend indicates that the securities may not be resold in the marketplace unless they are registered with the SEC or are exempt from the registration requirements. The certificates of control securities are usually not stamped with a legend.

Rule 144 Conditions

If you want to sell your restricted or control securities to the public, you can follow the conditions set forth in Rule 144. The rule is not the exclusive means for selling restricted or control securities, but it provides a "safe harbor" exemption to sellers. The rule's five conditions are summarized below:

1. Holding Period
   Before you may sell restricted securities in the marketplace, you must hold them for at least six months. The six-month holding period begins when the securities were bought and fully paid for. The holding period applies only to restricted securities.
    
2. Adequate Current Information
   Current financial information must be made available to the buyer. Companies that file 10-K and 10Q reports satisfy this requirement.
    
3. Trading Volume Formula
   After the six-month holding period, the number of shares 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 or quoted on Nasdaq, the greater of 1% or the average reported weekly trading volume during the four weeks preceding filing of Form 144 (Notice of Proposed Sale) with the SEC.
    
4. Ordinary Brokerage Transaction
   The sales must be handled in all respects as routine trading transactions, and brokers may not receive more than a normal commission. Neither the seller nor the broker can solicit orders to buy the securities.
    
5. Filing Notice With the SEC
   At the time you place your order, you must file a notice with the SEC on Form 144 if the sale involves more than 500 shares or the aggregate dollar amount is greater than $10,000 in any three-month period. The sale must take place within three months of filing the form and, if the securities have not been sold, you must file an amended notice.

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Printable Restricted Stock - Rule 144 Brochure (PDF)