Rule 144

Rule 144 Explained: How to Legally Sell Restricted and Control Securities

Rule 144 of the Securities Act of 1933 provides a safe harbor for the public resale of restricted and control securities without having to register the sale with the Securities and Exchange Commission (SEC). For investors, corporate insiders, legal advisors, and private company shareholders, Rule 144 is an essential part of navigating post-issuance liquidity—particularly in the context of private placements, mergers and acquisitions, or founder equity events.

Understanding Rule 144 can help avoid securities violations, reduce holding period confusion, and streamline the legal path to selling shares.

What Is Rule 144?

Rule 144 provides a legal method to resell securities that were:

• Restricted (i.e., issued in unregistered, private offerings), or
• Control securities (held by affiliates of the issuing company, such as officers, directors, or significant shareholders)

It allows for public resale of these securities if certain conditions are met, ensuring that sellers remain in compliance with federal securities laws while creating a pathway to liquidity.

Restricted vs. Control Securities

Restricted Securities:

• Typically issued in private placements, Reg D offerings, or employee stock plans
• Cannot be resold publicly unless Rule 144 or another exemption applies
• Bear a restrictive legend on the stock certificate

Control Securities:

• Owned by affiliates of the company (insiders or those with control or influence)
• Even if registered, sales by insiders are subject to volume and manner-of-sale limits

Conditions for Resale Under Rule 144

To sell securities under Rule 144, five key conditions must be met:

1. Holding Period

• Restricted securities must be held for at least 6 months if the issuer is a reporting company under the Securities Exchange Act of 1934

• 12 months if the issuer is a non-reporting (private) company

2. Current Public Information

• The issuing company must make adequate public disclosures (financials, company profile, etc.)

• Applies primarily to reporting companies

3. Volume Limitations

(for affiliates)

• In any three-month period, affiliates can sell no more than:

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

  • The average weekly trading volume over the past 4 weeks

4. Manner of Sale

• Must be conducted in routine trading transactions

• Brokers must comply with “manner of sale” rules, including handling the transaction on an agency basis

5. Filing of Form 144

(for affiliates)

• Required if selling more than 5,000 shares or $50,000 worth of securities in a 3-month period

Why Rule 144 Matters

For attorneys, compliance officers, and corporate finance professionals, Rule 144:

• Ensures that sales of private or insider stock are legally compliant
• Helps remove restrictive legends from certificates via opinion letters
• Plays a vital role in pre-IPO planning, SPAC exits, secondary sales, and founder liquidity events

Rule 144 also gives early investors, employees with stock options, and executives a legal exit strategy without triggering registration requirements or SEC scrutiny.

Common Use Cases for Rule 144

• Founders selling equity after holding period
• Venture capital funds exiting private investments
• Employees exercising and selling vested stock options
• Affiliates of public companies selling shares post-lockup
• Investors in Reg D or PIPE offerings seeking secondary liquidity

Legal Risks Without Compliance

Failing to meet Rule 144 conditions may result in:

• Unregistered public distribution, triggering SEC enforcement
• Delays in clearing shares for sale
• Liability for buyers and intermediaries (including broker-dealers)
• Complications with DTC eligibility and legend removal

Legal counsel should always be consulted when planning to resell restricted or control stock.

Final Thoughts

Rule 144 remains one of the most important legal pathways to exit and liquidity in U.S. capital markets. Whether you’re a startup founder, angel investor, affiliate of a public company, or legal advisor guiding clients through a capital event, understanding and properly applying Rule 144 is essential.

Need assistance with Rule 144 legal opinion letters, legend removal, or affiliated seller filings? Our team provides end-to-end document support and guidance to ensure your transactions are fully compliant with federal securities law.