Rule 144 Resales Toolkit
Resources related to resales of securities made in reliance on the Rule 144 safe harbor from registration under the Securities Act.
Rule 144 under the Securities Act ( www.practicallaw.com/1-382-3805) is a safe harbor for resales of securities:
Acquired from the issuer or its affiliates ( www.practicallaw.com/1-382-3221) in certain types of unregistered transactions, including Regulation D ( www.practicallaw.com/2-382-3744) offerings or compensatory stock grants under Rule 701 ( www.practicallaw.com/4-382-3781) . These securities are known as restricted securities ( www.practicallaw.com/3-382-3767) .
Held by an affiliate of the issuer, regardless of how the affiliate acquired the securities. These securities are known as control securities ( www.practicallaw.com/5-383-2172) .
Under the Securities Act, all offers and sales of securities must be registered with the SEC ( www.practicallaw.com/9-382-3806) unless an exemption applies. This principle applies to the resale of securities by investors, as well as to the issuer's original issuance. Most secondary sales of securities (for example, most stock trades made on stock exchanges) are exempt from registration under Section 4(a)(1) ( www.practicallaw.com/2-383-2625) of the Securities Act. Section 4(a)(1) exempts from registration transactions by anyone other than:
The issuer of the securities.
While the definitions of issuer and dealer are fairly straightforward, the Securities Act's definition of underwriter is very broad. Underwriter is defined in Section 2(a)(11) of the Securities Act to mean any person that either:
Purchases securities from an issuer or an affiliate with a view to distributing them.
Offers or sells securities on behalf of an issuer or an affiliate in connection with a distribution.
Under this definition, it is possible for virtually any securityholder that resells securities it purchased from the issuer or its affiliate in an unregistered transaction to be considered an underwriter. This concern is amplified when the securityholder is an affiliate of the issuer. Because of the close relationship between the issuer and an affiliated stockholder, it is considered more likely that the affiliate's resale represents the affiliate acting as a conduit for the distribution of the securities from the issuer to public investors, as opposed to simply monetizing the affiliate's investment.
However, if an unregistered resale is deemed not to involve a distribution of securities, the seller is not considered a statutory underwriter and may rely on Section 4(a)(1). If a securityholder resells its restricted or control securities in accordance with Rule 144, the resale is not considered a distribution, and, as a non-underwriter, the securityholder may rely on Section 4(a)(1). Rule 144 is commonly used for the resale of restricted and control securities. Once securities are resold under Rule 144, they are no longer considered restricted securities.
The resources in this toolkit are intended to assist counsel advising on Rule 144 resales by clarifying the requirements of Rule 144. This toolkit also includes standard documents that can be used as a starting point for counsel drafting documents required as part of executing a Rule 144 sale.