What is the Holding Period for Stock Acquired Under a Subscription Agreement?

Shareholders who own restricted stock in OTC Markets or OTC Bulletin Board Issuers know that compliance with Rule 144 is a fact of life, and that virtually no broker will accept OTC stock for deposit without a Rule 144 legal opinion letter from a securities attorney.

Among the many documents that can be used to support a Rule 144 legal opinion letter, the Subscription Agreement from a Private Placement can be useful in establishing the origin and history of restricted stock.  Sometimes the Subscription Agreement has one date when the Investor signed, and another date when it was signed by the Issuer.  Added to this, often the wire transfer date or date of the cancelled check can be different, as well.

Shareholder’s Holding Period Under Rule 144 Depends on the Issuer’s SEC Reporting Status

The main element of Rule 144 that concerns the Shareholder is the holding period required after the Shareholder has acquired the Shares from the Issuer.   In general, the holding period depends on whether or not the Issuer is an SEC reporting company or an OTC Markets Pink Sheet.  In either case, the Shareholder is allowed to “tack onto” the ownership of a prior Shareholder if the Shares were acquired in a private transaction.

Rule 144 Holding Period for SEC Reporting Companies

The Rule 144 holding period is six (6) months for those securities of OTC Bulletin Board, OTC Markets OTCQB and OTCQX (and for all securities listed on a national stock exchange like the NASDAQ or NYSE MKT).

Rule 144 Holding Period for Pink Sheets

The Rule 144 holding period for Non SEC reporting companies such as OTC Markets Pink Sheets is twelve (12) months.

When does the holding period start if the Shares are acquired by subscription agreement?

The holding period for restricted stock in over-the-counter companies like OTCBB, OTCQB, OTCQX and OTC Markets Pink Sheets that is acquired by the Shareholder by Subscription Agreement starts at the time the Subscription Agreement is accepted by the Issuer, not on the date the Subscription Agreement is signed by the Shareholder, since the Shareholder signs first, and then submits it along with an Investor Questionnaire in order to induce the Issuer to accept the subscription for the Shares.

The Holding Period Begins When the Issuer Signs the Subscription Agreement or Payment Is Made, Whichever Is Later

However this is only true if the purchase price for the Shares has already been paid by the Shareholder.   For that reason, the securities lawyer drafting Rule 144 legal opinions will pay close attention to the date of the wire transfer confirmation or cancelled check, since the holding period for all securities purchased or earned through services under Rule 144 does not begin until full consideration for the Shares has been paid.

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