Rule 144: Selling Restricted and Control Securities
When acquiring restricted securities or holding control securities, you have to look for an exemption from the SEC's registration conditions to trade them in the marketplace. Here is how: Rule 144 allows you to resell publicly restricted and control securities by satisfying several requirements. This article will show how to go about it. Likewise, it will also show how to have a restrictive legend removed. Defining Restricted and Control Securities Restricted securities are defined as securities obtained in unregistered, private sales from the issuer or from an issuer’s affiliate. Investors normally receive restricted securities through private placement offerings, employee stock benefit plans, Regulation D offerings, as remuneration for professional work, or as an exchange deal for delivering "seed money" or capital to start a company. Rule 144(a)(3) specifically defines what sales create restricted securities. Control securities are defined as those held by an affiliate of the issuing firm. An affiliate is one who has management control over an issuer, for instance, a director or a majority shareholder. Specifically, management control means the capacity to direct the operations and policies of the firm involved, either through the ownership of voting securities, either by contract or otherwise. Hence, when you acquire securities from an affiliate or a controlling person, you acquire restricted securities, even though that person was not restricted while holding it. When you take restricted securities, more often than not, you will get a certificate marked "restricted". The mark or legend signifies that you may not resell the securities in the marketplace unless they are SEC- registered or are exempt from the registration conditions. Control securities certificates often do not have such a legend. What Are the Conditions of Rule 144? To sell restricted or control securities publicly, follow Rule 144’s requirements. Although the rule does not cover all means for selling restricted or control securities, it provides a protective exemption to sellers, according to the five conditions listed below: Holding Period. Before you are permitted to sell restricted securities publicly, you need hold them for at a minimum of a year. The one-year period holding period starts from the time the securities were acquired and fully paid for. The holding period only covers restricted securities. Because securities acquired publicly are not restricted, no holding period is required for an affiliate who buys securities of the issuer in the marketplace. However, an affiliate's resale falls under the rule’s other requirements. Additional securities bought from the issuer do not affect the holding period of similar securities previously purchased. If you acquired restricted securities from another non-affiliate, you can apply on that non-affiliate's holding period to your own holding period. For gifts made by an affiliate, the holding period starts at the time when the affiliate purchased the securities, not at the time it was given. For a stock option that an employee receives, for instance, the holding period always starts from the date the option is exercised, not the time it was received by the employee. Adequate Current Information. Sufficient current information is required about the issuer of the securities before a sale can be consummated. Generally, this signifies the issuer has satisfied periodic reporting stipulated by Securities Exchange Act of 1934. Trading Volume Formula. Upon expiry of the one-year holding period, the number of shares you are allowed to sell within any three-month period must not be greater than 1% of the outstanding shares of the same class being sold; or if the class is listed on a stock exchange or Nasdaq-quoted, the higher of 1% or the reported weekly trading volume average within the four weeks prior to filing a notice of the sale on Form 144. Over-the-counter stocks, such as those quoted on the OTC Bulletin Board and the Pink Sheets, are permitted for sale using the 1% condition. Ordinary Brokerage Transactions. Sales have to be implemented in all respects as ordinary trading transactions; and brokers are not allowed to receive above-regular commissions. Both the seller and the broker cannot solicit orders to purchase the securities. Filing Notice with the SEC. At the time the order was made, you must submit a notice with the SEC on Form 144 if the sale covers over 500 shares or the total amount is more than $10,000 in any three-month duration. The sale must be done within three months of filing the Form and, if the securities have not been traded, you are required to file an amended notice. If you are not an affiliate of the issuer and hold restricted securities for already two years, you are exempt from the above conditions. Can the Securities Be Sold Publicly If the Conditions of Rule 144 Have Been Met? Even after satisfying Rule 144 conditions, you are not allowed to sell your restricted securities publicly until you the legend has been removed from the certificate. The restricted legend can only be removed by a transfer agent. However, the transfer agent will not remove the legend until you have been allowed by the issuer to do so — often through an opinion letter from the issuer's counsel. Without that, the transfer agent is not permitted to remove the legend and consummate the trade in the marketplace. To commence the process, an investor should get in touch with the firm that issued the securities, or the transfer agent of the firm's securities, to inquire regarding the process for removing a legend. The process of removing the legend can be an intricate step, in case you plan to buy or sell a restricted security. What If a Dispute Arises Over Whether One Can Remove the Legend? In case a dispute ensues about whether a restricted legend can be removed or not, the SEC is not obligated to intervene. The question is a matter exclusively left in the hands of the issuer of the securities. State law, not federal law, supervises such disputes regarding legend removal. As such, the SEC will not get involved in any decision or issue about removing a restrictive legend. DFS Associates is recognized as a trusted investment banking company worldwide, recognized as a leader in mergers and acquisitions, corporate finance, tax efficiency and divestitures, especially in the middle tiers of the private sector. DFS Associates is recognized as a trusted investment banking company worldwide. DFS Associates helps business owners achieve their goals through the intricate process of selling their business, with us providing specialized knowhow, expertise, insight and technical support. Our senior transaction experts have decades of middle-market M&A track record and are directed engaged involved in each deal. Our process begins with a meticulous assessment to pinpoint the value of a business as well as the prospective market choices available. The client can then opt to pursue a viable sale transaction. Marketing Our company designs extensive marketing tools, such as an Information Memorandum that satisfies SEC guidelines, including a one-page summary called a Précis. Likewise, we develop a comprehensive list of potential buyers utilizing our numerous contacts and databases of strategic investors from all over the world. The step involves seeking and evaluating client-approved potential buyers and strategizing with the client to choose the most viable deal structure and terms. Execution DFS Associates then execute the deal by helping the client appraise different tenders from buyers, keeping in mind the best interests of the client, from the inception of the transaction, through due diligence, to its completion. DFS Associates is a global investment banking company focusing in serving clients’ requirements in mergers and acquisitions, divestitures and corporate finance for private middle-market enterprises. DFS Associates serve principally firms with yearly earnings of $3 million to $500 million, dealing with company owners all over Tokyo, Japan engaged in various industries and guiding them to evaluate, enhance, grow and sell their businesses.
Likewise, DFS Associates offer consultancy services to assist Japan and global corporations; private financial groups and others seek and buy Tokyo, Japan private middle-market companies that satisfy certain acquisition parameters. By applying our wide expertise and resources, the company can pinpoint prospective targets not available in the market, giving buyers to acquire those firms that most closely suit their specific criteria. DFS Associates commits to delivering each client's particular needs through effective strategic evaluation and smooth implementation to achieve optimum profit. Our experienced professionals offer clients a unique mix of top-level Wall Street knowhow and extensive middle-market experience, acquired through many years of involvement in advising mid-sized business companies. DFS Associates conducts Executive Briefings aimed at presenting a general perspective of the professional M&A procedure and how it can work within the middle market – principally in terms of firms having revenues ranging from $3 million to $500 million. If you sit down in one of these intensive, day-long briefings, you can get a deeper appreciation of the requirements for a successful sale of a private firm while optimizing its selling price, namely:
Our briefings are made available to chosen private middle-market firms from sectors with high rates of acquisitions. Less than 3% of Tokyo, Japan firms will qualify to attend these briefings. Knowing your firm’s market value is crucial in coming up with intelligent decisions for future growth. DFS Associates’ Professional Services group adheres to a strategic valuation procedure to derive a company’s worth and determine prospective market options.
Complete Client Analysis DFS Associates require our clients to fill-out a comprehensive questionnaire presenting information on company assets, organization, nature of business and marketing programs. The data provided is vital in providing the foundation for analysis and research. Market Research DFS Associates conduct a full market study to determine industry-related historical and expected growth rates, performance ratios and general industry patterns. Our market research likewise aids in identifying possible growth options and establish credence and evidence for the company's pro-forma financial statements. Recasting and Pro Formas Our strategy involves reconfiguring the firm's last five-year financials to imitate the operations of a wholly owned subsidiary of a bigger firm. These recasted historical financial statements will then be used as basis for developing five-year pro formas of income statements, balance sheets and cash flow statements, reflecting the real financial operating capability of the firm. Platform Based on the previous process, we come up with the Platform, an evaluation paper based on comprehensive research and evaluation of a firm's operations, financials and sector. The Platform requires 120 days to accomplish and is customized to our clients’ particular objectives and distinctive situations. IRS Capital Gain Based on the Internal Revenue Code, Capital Gain is the profit derived from the sale or exchange of a capital asset. For instance, a stock sold for profit will have a capital gain which is the difference between the net sales price and the original cost or basis price. Capital Gains, however, may be offset by capital losses and capital-loss carryovers. How do I become involved? Firstly, we request for your non-performing holdings. As your mediator, we will try to find a matching client open to exchanging securities with you. Please fill out the attached response form and submit to our offices through email or fax. Capital Gain Tax Capital Gains are incomes arising from the sale of an asset. A capital gain requires payment of a capital gains tax. The amount capital gains tax will vary according to whether the asset was held for a long or a short period. The tax rate on short-term capital gains is greater than the tax rate on long-term capital gains. Hence, the timing of capital-asset swaps is a vital decision factor. DFS Associates is recognized as a trusted investment banking company worldwide, recognized as a leader in mergers and acquisitions, corporate finance, tax efficiency and divestitures, especially in the middle tiers of the private sector.
The firm’s financial experts possess a broad spectrum of experience and involvement in assisting numerous business owners in assessing, enhancing, improving and selling their businesses and minimizing Capital Gain tax payments. Clients will receive a one-of-a-kind mix of high-level Wall-Street capability and extensive middle-market know-how, derived through many years of direct engagement as entrepreneurs and as professional counselors to mid-sized businesses owners. Our company’s mission is to become an unparalleled global investment-banking firm for the private middle market, especially in providing excellent client service. DFS Associates demand from our people the highest levels of professional conduct, observance of high ethical values and expert performance beyond client, employee and shareholder expectations within our entire organization. Global Reach DFS Associates serve the needs of private middle-market firms all over Tokyo, Japan and bring them to global markets to attain their acquisition, merger, tax minimization and divestiture goals. Market Focus Our firm focuses exclusively in the private middle market, gaining many years of unequalled expertise in the process. Extensive Industry Exposure Our one-of-a-kind strategy in dealing with the markets qualifies us to serve firms in practically all sectors and areas in the country. Talented Team Our M&A group of financial experts provide service to numerous global and local middle-market investors and firms. DFS Associates is recognized as a trusted investment banking company worldwide, recognized as a leader in mergers and acquisitions, corporate finance, tax efficiency and divestitures, especially in the middle tiers of the private sector. The firm’s financial experts possess a broad spectrum of experience and involvement in assisting numerous business owners in assessing, enhancing, improving and selling their businesses and minimizing Capital Gain tax payments. Clients will receive a one-of-a-kind mix of high-level Wall-Street capability and extensive middle-market know-how, derived through many years of direct engagement as entrepreneurs and as professional counselors to mid-sized businesses owners. How Tax Minimization Can Help Save In general, every country has a law requiring payment of capital gains tax must on any sales proceeds arising from the sale of property, securities, and other financial assets. In recent years, some of our top-dollar customers have earned considerable capital gains in the stock market, raising their tax classification bracket. Hence, we aim to find ways to match these clients’ portfolios with unproductive shares (ones that are at present selling at a net loss) to balance out their taxable income. How can we serve your needs? In recent years, the unpredictable conditions and bad choices made in the securities markets have led to financial losses suffered by many people, causing a net loss in their portfolio. Through selling your present holdings for high-value securities, you can essentially recover any previous losses while our clients can take advantage of a reduced taxable income. In the end, our clients can increase their earnings and reduce their tax by exchanging some of their holdings for your non-performing investments while saving on capital gains tax by not trading their shares in the open market. |
About UsDFS Associates is recognized as a trusted investment banking company worldwide, recognized as a leader in mergers and acquisitions, corporate finance, tax efficiency and divestitures, especially in the middle tiers of the private sector. Archives
December 2017
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