Restricted
and/or Control Securities
What are Restricted and Control
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. Rule 144(a)(3) identifies
what sales produce restricted 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, 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 buy
securities from a controlling person or "affiliate," you take
restricted securities, even if they were not restricted in the
affiliate's hands.
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. (source:
www.sec.gov)
How do I remove a Restrictive
Legend?
"Restricted" securities
are securities acquired in an unregistered, private sale from an issuer
or from an affiliate of the issuer. They typically bear a legend
clearly stating that you may not resell them in the public marketplace
unless the sale is exempt from the SEC’s registration requirements.
Rule 144 under the Securities Act of 1933 provides the most commonly
used exemption for holders of restricted securities. To take advantage
of this rule, you must meet several conditions, including a one-year
holding period.
Even if you’ve met all the conditions of Rule 144, you still cannot
sell your restricted securities to the public until you’ve had the
legend removed from the certificate. Only a transfer agent can remove a
restrictive legend. But the transfer agent won’t remove the legend
unless the issuer consents—usually in the form of an opinion letter
from the issuer’s counsel to the transfer agent.
If you want to remove the restrictive legend, you should contact the
company that issued the securities—or the transfer agent for the
company’s securities—to ask about the procedures for removing a legend.
If you have a broker, you may want to ask your broker to help you.
If a dispute arises about whether a restricted legend can be removed,
the SEC will not normally intervene. The removal of a legend is a
matter solely in the discretion of the issuer. State law, not federal
law, covers disputes about the removal of legends.
If you are considering acquiring restricted securities, it would be
wise for you to consult an attorney who specializes in securities law.
(source: www.sec.gov)
What is Form 144?
This Form must be filed
with the SEC as notice of the proposed sale of restricted securities or
securities held by an affiliate of the issuer in reliance on Rule 144.
Notice on the Form is only required when the amount to be sold during
any three-month period exceeds 500 shares or units or has an aggregate
sales price in excess of $10,000. The sale must take place within three
months of filing the Form and, if the securities have not been sold, an
amended notice must be filed. (source: www.sec.gov)
You may also be interested in:
Share Deposits and
Withdrawals
Opening a New Account
Trading
Disclosure
SEC Rule 144
Rule 144: Selling Restricted and Control Securities
