Understanding SEC Form 144: A Comprehensive Guide to Selling Restricted and Control Securities

When it comes to navigating the complex world of securities regulations, few forms are as crucial as the SEC Form 144. This form is a cornerstone for individuals and entities looking to sell restricted or control securities, ensuring compliance with the Securities and Exchange Commission (SEC) regulations. In this guide, we will delve into the intricacies of SEC Form 144, its importance, and the steps involved in filing it.

What is SEC Form 144?

SEC Form 144 is a document that notifies the SEC and the public about the intention to sell restricted or control securities. These securities can include shares acquired through private sales or held by affiliates such as directors, officers, or large shareholders. The form serves as a transparency mechanism, allowing the market to be informed about significant transactions that could potentially impact stock prices.

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Relation to SEC and EDGAR Filing

Filing SEC Form 144 is now an electronic process through the SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system. This shift from traditional paper filings or email submissions ensures quicker and more efficient processing. The form must be filed in XML format, aligning with the SEC’s modernization efforts to enhance data accessibility and analysis.

Who is Required to File Form 144?

Not everyone needs to file SEC Form 144, but certain individuals and entities are mandated to do so. This includes:

• Corporate insiders: Directors, officers, and shareholders who own more than 10% of the outstanding shares.

• Affiliates of the issuer: This can include household-sharing relatives, trusts, estates, and corporations with significant equity interests.

These individuals must adhere to strict guidelines to ensure transparency in their transactions.

When is the Deadline to File Form 144?

The timing of filing SEC Form 144 is critical and depends on several factors:

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  Holding period requirements: For reporting companies, restricted securities must be held for at least six months; for non-reporting companies, this period extends to one year.

• Triggering events: The form must be filed if sales exceed 5,000 shares or $50,000 over a three-month period.

• Volume limitations: Sales cannot exceed 1% of the total number of outstanding securities or the average weekly trading volume.

Understanding these deadlines and limitations is essential for compliance.

Conditions for Resale Under Rule 144

To resale restricted securities under Rule 144, several conditions must be met:

• Holding period: As mentioned earlier, this varies between six months for reporting companies and one year for non-reporting companies.

• Volume limitations: Affiliates are restricted from selling more than 1% of the total outstanding shares or the average weekly trading volume.

• Manner of sale: Sales must be conducted in a manner that does not involve solicitation or any form of manipulation.

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  Current public information: The issuer must have up-to-date financial statements and disclosures available.

These conditions ensure that the resale of restricted securities does not disrupt market fairness.

Special Considerations for Affiliates

Affiliates face stricter rules when selling restricted securities:

• Even after meeting the holding period, affiliates are subject to volume limitations and manner of sale requirements.

• For example, an affiliate looking to sell restricted securities must carefully plan their sales to avoid exceeding the allowed volume and ensure that the sales are conducted in a compliant manner.

Filing Form 144 on EDGAR

Filing SEC Form 144 on EDGAR involves specific requirements:

• The securities to be sold must have been held for at least 10 calendar days prior to filing.

• There are restrictions on listing securities sold in the past 10 calendar days or more than nine months in the past.

• The date of notice and filing deadlines must be carefully observed.

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