SIE Ready🚀 Securities Offerings · Lesson 5 of 6 · 6 min
Rule 144: Selling Restricted and Control Stock
⏳ A founder owns millions of shares and the stock just hit a record. Why can't she just dump them all tomorrow?
💡 Key idea
Restricted: 6 months (reporting issuer) or 1 year (non-reporting). Affiliates: greater of 1% of outstanding or 4-week average weekly volume per 3 months.
🧠 Why it matters
RESTRICTED securities come from unregistered, private sales (for example a 506(b) placement). CONTROL securities are held by AFFILIATES: officers, directors and large shareholders who can influence the company. Rule 144 is a safe harbor for reselling them publicly. HOLDING PERIOD for restricted stock: at least 6 MONTHS if the issuer is an SEC reporting company, 1 YEAR if not, counted from when it is fully paid. AFFILIATES also face a VOLUME limit in any 3 months: the greater of 1% of the outstanding shares of the class or, for exchange-listed stock, the average weekly trading volume over the 4 weeks before filing notice. Affiliates must use ordinary brokerage transactions and file FORM 144 if they sell more than 5,000 shares or more than $50,000 in 3 months.
📈 In the real world
Director Elena (fictional) wants to sell stock of her listed company, which has 50 million shares outstanding and trades about 400,000 shares a week. Her 3-month cap is the greater of 500,000 (1%) or 400,000, so 500,000 shares. Because that exceeds 5,000 shares, she files Form 144.
📌 Takeaways
- Restricted = acquired privately; control = held by an affiliate
- Holding period: 6 months reporting issuer, 1 year non-reporting
- Affiliate volume: greater of 1% or 4-week average weekly volume; Form 144 above 5,000 shares or $50,000
📖 Terms in this lesson
Rule 144: The SEC safe harbor for public resales of restricted and control securities, with holding periods, volume limits and, above set thresholds, a Form 144 filing.
Restricted security: Stock acquired in an unregistered, private transaction that cannot be sold publicly until Rule 144 or another exemption allows it.
Control security: Stock owned by an affiliate, such as an officer, director or large shareholder able to influence the issuer; its sales fall under Rule 144.
✅ Test yourself
An investor bought restricted stock in a private placement by an SEC reporting company. The minimum holding period under Rule 144 is:
- 90 days
- 6 months
- 1 year
- 2 years
Answer: B · 6 months
For a reporting issuer the minimum is 6 months; for a non-reporting issuer it is 1 year. 90 days and 2 years are not Rule 144 holding periods.
Shares owned by a company's chief executive officer are best described as:
- Control securities
- Treasury stock
- Restricted only
- Exempt securities
Answer: A · Control securities
Securities held by an affiliate, such as a CEO, are control securities, even if bought in the open market. They are not exempt or treasury stock, and they are restricted only if acquired privately.
A listed company has 20,000,000 shares outstanding; average weekly volume for the past 4 weeks is 250,000 shares. An affiliate may sell in 3 months up to:
- 20,000 shares
- 200,000 shares
- 250,000 shares
- 1,000,000 shares
Answer: C · 250,000 shares
The limit is the greater of 1% of outstanding (200,000) or average weekly volume (250,000), so 250,000. 20,000 misplaces the decimal and 1,000,000 has no basis in the rule.
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