144 Stock in Exchange for Consulting Services

When Does My Holding Period Start if I Receive 144 Stock for Consulting?

If you provide consulting services for the issuing company, under SEC Rule 144, your holding period begins only after you have actually and completely performed the services.  The reason is intuitive:  after you have completed the services, there are no conditions under which you are not entitled to receive and keep your 144 stock.

Rule 144 Opinions Need to Clarify Vague or Ambiguous Consulting Agreements

The problem with many Consulting Agreements is that they are worded ambiguously.  The reader cannot tell when (or if) the 144 shares were ever due.  Transfer Agents need 144 opinions in order to remove any question as to whether or not the 144 stock has been “earned” by the consultant.  The answer to that question depends on exactly what the Consulting Agreement says.

We Help Request Needed Documents from the Issuer So Rule 144 Conditions Are Met

When that document was drafted poorly or is unclear, we can request affidavits or other supporting documentation from the Issuer.  Often the Board Resolutions written at the time of the Consulting Agreement will document that the services were performed.  Affidavits from the Issuer’s CEO can confirm the date on which services were actually rendered–and this is the date on which your holding period starts (not the date of the Consulting Agreement.)

Some contracts may state that your 144 stock compensation was fully earned when issued or at a specified date in the past, even though your consulting services are still to be rendered.  In those cases, your holding period starts on the contract date or specified date but this is often when additional documentation is needed.  Part of our services include identifying when more documents are required, and we can request these for you from the appropriate party.

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What Are The Exceptions to SEC Rule 144?

Some Examples of Exceptions to Rule 144

  1. Stock included in a Registration Statement is not subject to Rule 144 if sold exactly as described in the Issuer’s Prospectus.  If not sold exactly as specified then Rule 144 is applied.
  2. Stock purchased from an Issuer, which relied Rule 504, Regulation D is not subject to Rule 144 if it is resold by a Non-Affiliate or Non-Control Person.  (However, if the Issuer did not satisfy the exemption requirements of Rule 504 the stock would still be restricted  even if a legal opinion had been prepared, so this only applies if it was done properly.)

Discuss Rule 144 Exemptions With A Qualified Broker To Be Sure

When in doubt, discuss your stock with an experienced Broker.  Relying on so-called 144exemptions to avoid qualifying under Rule 144 only works when very specific requirements are met and it make sense to simply seek a Rule 144 legal opinion if there is any doubt.

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Must I Intend to Actually Sell My Restricted Stock Under Rule 144 to Get An Opinion Letter?

Only Affiliates of the Issuer Must Intend to Actually Sell Their 144 stock

This is another area within SEC Rule 144 where Affiliates and Non-Affiliates of an Issuing Company are treated differently.  While a Non-Affiliate is not required to have any intention to sell restricted stock in order to get a legal opinion (and have the restricted legend removed from the stock certificate), an Affiliate of the Issuer must intend to sell the restricted stock through a Broker in order to obtain a 144 legal opinion.

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Do I Need a Broker To Obtain A Rule 144 Opinion to Sell Restricted Stock?

Under Rule 144 Only Affiliates of the Issuer Need a Broker to Sell

Only an Affiliate of the Issuer must engage a Broker in order to sell stock of the issuing company (both restricted and unrestricted stock) into the public market.

Even Non-Affiliates Benefit By Using Experienced Brokers in 144 Stock Sales

While a Non-Affiliate is not required by Rule 144 to use a Broker to sell restricted stock, any Non-Affiliate can benefit from using a knowledgeable Broker familiar with restricted stock sales under SEC Rule 144 because a good Broker can always recommend a qualified securities attorney who’s 144 opinion letters the Transfer Agent will accept.   Most of the referrals received by 144letters.net are from such highly experienced Brokers.


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How To Tell If You’re Buying Restricted Stock From An Affiliate

How Can I Tell If the Seller in a Private Sale is an Affiliate Under Rule 144?

Since an “Affiliate” is defined as a “control person” of the Issuer, ask what role the Seller may have played in the founding or operations of the Company.  It would be very clear that the Seller is an Affiliate if, of course, he or she was at one time an officer, director, founder or if the Seller owned more than ten (10%) of the Company’s shares.

Affiliate Status Is Not Always Obvious Under Rule 144

He or she could be classified as an Affiliate for either direct or indirect involvement–that is, perhaps they worked through another legal entity, company, partnership, LLC, or Trust controlled by an Affiliate of the Issuing Company.  Or perhaps they are a family member of an Affiliate, living in the same household.  These relationships matter since an Affiliate is someone who can, either directly or indirectly by owning stock, through a legal contract or in other ways, control or influence the operations of the Issuer.



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Since Rule 144 Doesn’t Apply to Private Sales Why Do I Need a 144 Opinion Letter?

Even if your restricted 144 stock was acquired by gift or from a private sale transaction, the issuer’s  Transfer Agent (and the issuing company itself) will nevertheless still require a 144 opinion letter because the letter is not designed to protect you as the Shareholder–144 letters are for the benefit of the Transfer Agent and Issuer so that they can combat any charge of facilitating a violation of the Securities Act of 1933, which nobody wants to do.


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How Long Will My Form 144 Last?

How long is my Form 144 valid after I submit to the SEC?

If you’re an Affiliate of the issuing company, your Form 144 is valid for three (3) months from the date you filed it with the SEC.

What Happens if I Don’t Sell Rule 144 My Stock In Time?

If any of your “restricted stock” remains unsold after three (3) months, you can fill out a new Form 144.  If you don’t file a new Form 144 with the SEC, your broker must send the certificates back to the Transfer Agent, who can reissue a new stock certificate with the Rule 144 restrictive legend.


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After I Sign SEC Form 144, How Long Do I Have To Sell My Restricted Stock?

Ninety (90) Days.  As an Affiliate of the issuer, your Form 144 is valid  for three (3) months from the filing date.

But if some of your 144 restricted stock remains unsold after that time frame, you can fill out a new SEC Form 144, so long as you remain in compliance with the limitations of one (1) percent of the issued Shares outstanding, or the weekly average trading volume, depending on your situation.

If for some reason you do not file a new Form 144, your unsold shares of restricted stock need to be returned to the Transfer Agent by our Broker so that a new stock certificate can be issued with the restrictive legend.

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Are You An Affiliate Under Rule 144?

Affiliates Exhibit Access and Control Over Issuing Companies

If you are or were an executive, officer, insider of the company, trustee, close advisor or a spouse or family member of one of those people, chances are good you might be considered an Affiliate.

Or, the securities attorney will need to document in the opinion letter why you should not be considered an Affiliate. Otherwise you may have to wait to sell your 144 stock.

Under Rule 144, an Affiliate is defined as one who:

directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer

Restrictions on Affiliates Who Want To Sell Rule 144 Stock

Under Rule 144, an Affiliate Shareholder may not sell restricted stock in a reporting company until six (6) months after taking ownership.

An Affiliate sale of 144 stock also carries certain restrictions on volume relative to the overall total shares outstanding, is subject to a 90-day selling period and must file a form Rule 144 with the SEC.

A Shareholder who is not an Affiliate of the issuer can sell  stock without any waiting period or time limitations.   A qualified securities attorney with 144letters.net can determine if you are considered an Affiliate under Rule 144, and if so, how to meet the volume, waiting period and form filing requirements.

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Can I Requalify Under Rule 144?

We Will Tell You What You Need To Qualify Under Rule 144

How Long Have You Owned Your 144 Stock?Time Requirements Under Rule 144

Most disqualifications are due to timing–the Shareholder has not owned the stock for long enough, and can’t “tack onto” the previous holder’s ownership.  When the required time period under Rule 144 passes, we’ll be ready to go.  We’ll tell you when.

We Can Help Document Rule 144 TransactionsDocuments Needed Under Rule 144

Other disqualifications are due to missing documents or inconsistent documents.  Sometimes there is not enough information (especially on non-reporting companies) for the securities attorney to determine if the requirements of Rule 144 have been met.

On other occasions there are incorrect dates or ambiguous information that needs clarification by company executives or the Shareholder.

One issue that comes up repeatedly is when fees paid in stock for “consulting services” were actually earned.  The dates and the language in the Consulting Agreements sometimes needs correction or clarification by the company’s CEO via affidavit or letter.  We will tell you exactly what is needed and help track it down.

When the appropriate documents are eventually located, we are ready to complete the 144 letter process for the Shareholder, often within just a couple of hours, since most of the research will have already been completed.

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