How To Document the Rule 144 Holding Period in a Private Placement

One of the most common ways a Shareholder acquires restricted stock of an OTC Bulletin Board or OTC Markets Pink Sheet Issuer is through a private placement.  A Private Placement usually includes several items that can help a securities lawyer drafting a Rule 144 legal opinion letter to confirm the date on which the Shareholder’s holding period began under Rule 144.

Private Placement Memorandum or Stock Purchase Agreement

Sometimes these private placements are formal, and a Private Placement Memorandum (“PPM”) under Regulation D 504, 505, or 506 is used and the Issuer actually files a Form D with the SEC.  Other times, the Issuer is less formal, and uses instead a Stock Purchase Agreement (“SPA”).  Both a PPM and an SPA can be used to document when the transaction actually occurred for the purposes of determining the Rule 144 holding period.

Subscription Agreement and Investor Questionnaire

More likely with the PPM, the OTC Issuer may have also  provided the Shareholder with a Subscription Agreement that lists the per share price of the restricted stock, the amount of money the Shareholder is investing, and the number of shares awarded to the Shareholder.   For this reason, Subscription Agreements are very helpful as supporting documentation on which a Rule 144 opinion can be based.

An Investor Questionnaire will often accompany the PPM or SPA, to provide the Issuer with the assurance that the Shareholder is an Accredited Investor.  This provides yet another document that “dates” the transaction, and adds to the paper trail supporting the 144 opinion letter.

Wire Transfer Confirmation or Cancelled Check

Shareholders who still have a copy of their wire transfer confirmation or cancelled check can easily document the purchase of Shares under Rule 144.  Most Shareholders do not have this proof of payment available, but those who do make it easier on a securities attorney drafting a Rule 144 opinion letter, since the date of the payment establishes the beginning of the Shareholder’s holding period under Rule 144.

S-1 Registration Statement

Even more rare than a wire transfer confirmation is finding that the Issuer actually filed an S-1 “resale” registration statement.  This is often promised within the language of a PPM in order to induce investors to join the private placement in the hope that their Shares will later “be registered with the SEC.”

Even if the S-1 has long-since gone “stale” the fact that the Shareholder’s name and the amount of Shares are listed in an SEC filing provides great documentation for a securities lawyer drafting the 144 opinion letter.   This is likely the only reason that a private, Non Affiliate, Shareholder would find his or her name and number of Shares in a public filing.  By referencing the S-1, the securities lawyer researching the elements of Rule 144 can confirm that the Rule 144 holding period is no longer in question, regardless of when the actual certificate was issued.

Even if all of these documents cannot be located, Shareholders with restricted stock acquired in a private placement can contact securities lawyer Matt Stout to discuss how to document the transaction, and the Rule 144 holding period at (410) 429-7076.

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