As a business owner or employee, you may find yourself with some “restricted” or “controlled” securities. The rules of the Securities and Exchange Commission (SEC) govern these types of securities and can seem complex. If you’re ready to sell them, but you’re not sure how to do it, here are a few pointers.

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Restricted Securities

Certain securities are prohibited from being sold in the marketplace, except for certain exceptions. These securities are known as restricted securities. There are a variety of ways you may have obtained these. Perhaps you provided seed money as start-up capital for your company, and the company issued restricted securities to you in exchange. Or, you may have received them via an employee stock benefit program. If so, your certificate may be stamped with a seal that says “restricted.” These are just a few scenarios of how you might have acquired restricted securities.

Control Securities

Control securities are also prohibited from being sold in the marketplace. Control securities are those that are held by an affiliate of the company who issued the securities; the affiliate is typically someone with a controlling management or voting interest in the issuing company. If you buy securities from them, they become restricted securities, even if they were not stamped “restricted” when issued to the affiliate.

SEC Rule 144 Exemptions

Now that you understand restricted and control securities, what can you do with them if you find yourself in possession of this type of asset? According to the SEC, securities cannot be sold unless you register with the SEC; fortunately, SEC Rule 144 provides some exemptions to that requirement. The conditions are complex, and you should seek legal advice, but here’s a quick overview of the exemptions of Rule 144 that provide a “safe harbor” when selling restricted securities without registering with the SEC.

You must have held the securities for a certain period of time, usually six or 12 months from the date you purchased or acquired them, depending on the circumstances. The issuing company must be current with all its reporting and public information.

If you are an affiliate:

  • There is a formula you must apply to how many equity securities you can sell during any three-month period.
  • Neither you nor your broker may solicit offers for the securities.
  • You must file Form 144 with the SEC, notifying them of your intended sale if it exceeds certain dollar amounts.
  • If your certificates have the “restricted” stamp on them, you’ll need to request the issuer to remove that stamp before you can sell them. That can be a slow process, and may require legal help.

Getting Started

If you have not yet started your business, and are thinking of doing so soon, understanding how you can receive securities in exchange for your start-up capital may give you the momentum you need to get going. Of course, this is just a glimpse at complex securities laws, so you may want more in-depth information.

You can use our Ask-a-Lawyer service for help with Rule 144, or with other aspects of starting your business. If you’re ready to take the next step, we also provide a fast and efficient incorporation service. Why hand-carry your incorporation papers to your Secretary of State? The convenience of our 24/7 filing service is incomparable.

Get started Start Your Incorporation Answer a few questions. We'll take care of the rest.

Get started Start Your Incorporation Answer a few questions. We'll take care of the rest.