When Can I Have the Restricted Legend Removed From My Stock Certificates?

Is the Shareholder an Affiliate of the Issuer?

If you are now, or have been within the previous 90 days, an Affiliate of the Issuer, you cannot have them removed (yet).   All Affiliate stock is subject to volume limitations and notice requirements under Rule 144.  Once you have ceased to be a control person (officer, director, 10% owner, etc.) for greater than 90 days, you may no longer be considered an Affiliate.   Consult with a securities attorney to make sure.

Has it Ever Been Marked a Shell under Rule 144?

If the Issuer is now a “shell” or was a “shell” in the past, its filings must be current for one year after it ceases to be a shell, in order for the restricted legends to be removed under Rule 144.  This is a game changer because even if all of the other elements of Rule 144 are met, the “shell” classification can cause considerable delay in clearing stock of otherwise good companies who have been current in their filings.  This is a substance over form question, and sometimes the Issuer’s filings might not tell the whole story.  On many occasions, an Edgar filer has inadvertently checked the “shell” box on a filing and caused a development stage company to be incorrectly marked as a “shell.”  An experienced securities attorney knows how to review the filings and discover if the Issuer was truly a shell, and if so, when it ceased to be a shell. If the “shell” classification was a mistake, a securities lawyer like Matheau J. W. Stout, may be able to document and correct this filing error.

If You Are Not An Affiliate of the Issuer Your Holding Period Determines When Your Stock Becomes Free Trading

If you are not an Affiliate of the Issuer AND the Issuer was never a shell, you can get the Transfer Agent to remove the restricted legend:

  1. If you have a owned or “held” the Shares for at least 6 months, if the Issuer is an SEC reporting company and current in its SEC filings (such as Forms 10-Q, 10-K and 8-K); or
  2. If you have owned or “held” the Shares for at least 12 months, if the Issuer is not an SEC reporting company.
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