Rule 144 stock sales

Rule 144 can be used by shareholders to register their share holdings in a business. This approach is typically used when the issuing entity is taking an excessively long time to register shares.

A public company may find that the process of registering shares with the Securities and Exchange Commission (SEC) is cumbersome, expensive, and time-consuming. In some cases, the better part of a year may pass before the SEC allows stock to be registered. There will be pressure from shareholders to register their stock, since stock certificates bear a restrictive legend that prevents their sale until they are registered.

Under Rule 144, investors can sell their stock holdings if all of the following conditions have been met:

  • Holding period. A shareholder must hold the shares for at least six months.
  • Reporting. The company must be complying with its SEC reporting requirements.
  • Trading volume. If the stockholder is in a control position at the company, then he or she can only sell the greater of 1% of the outstanding shares of the same class being sold or 1% of the average weekly trading volume in the four weeks preceding a notice to sell shares.
  • Trading transaction. The sale of stock must be handled as a routine trading transaction, with the broker receiving a normal commission.
  • Notice of sale. If the stockholder is in a control position at the company, he or she must file a Form 144 with the SEC, giving notice of intent to sell. This requirement is not applicable if the sale is for fewer than 5,000 shares or the aggregate dollar amount will be less than $50,000.

Following completion of the applicable conditions, shareholders must apply to the company’s stock transfer agent to have any restrictive legends removed from their stock certificates. The stock transfer agent will only remove the legend with the written approval of the company’s designated attorney. Once the legend has been removed, a shareholder can sell the stock.

Though Rule 144 appears to give investors a reasonable means for selling their stock, its practical application is limited by the volume of trading in the stock. Thus, even though investors may be allowed to sell their stock, it does not mean that there will be a sufficient number of interested buyers to allow for their sale.