Updated October 5,2020:

What Is Rule 144?

Rule 144 is the most common exemption that allows the resale of unregistered securities in the public stock market, which is otherwise illegal in the U.S. The regulation gives a specific set of conditions that a shareholder must meet in order to sell unregistered, "restricted," or "controlled" securities in the public marketplace.

For a shareholder to sell securities (such as stock, bonds, equities) on the public stock market, the securities and sale need to be registered with the U.S. Securities and Exchange Commission (SEC). Securities that are not registered or that are labeled as "restricted" or "controlled" generally cannot be sold or resold on the public market. However, there are several exemptions for the resale of restricted securities, and Rule 144 is the most commonly used.

Understanding the Key Terminology

Securities Registration

  • The process of filing documents with the SEC before publicly offering securities for sale.
  • Must include detailed information about the company and the security being offered.
  • Also refers to the process that securities brokers and dealers go through to be legally able to sell securities.

Unregistered Securities

  • Not registered with the SEC.
  • Also called restricted stock or restricted securities.
  • Usually issued through private transactions, Regulation D offerings, and employee stock benefit programs, in exchange for professional services or start-up funding.
  • Have fewer protections and different risks for investors compared to registered securities.

Restricted Securities

  • Also known as "restricted stock", "letter stock," and "section 1244 stock".
  • Unregistered and non-transferable shares of ownership in a corporation.
  • Typically issued to investors, corporate executives, and directors (compensation packages), to employees (stock benefit plans), or as part of a merger and acquisitions transaction.
  • May have a legend on the certificate indicating that the stock is restricted and can only be sold if registered or subject to a legal opinion.

Control Securities

  • Securities that are held by an "affiliate" of the company that issued the securities.
  • If you buy or receive securities from an affiliate (control securities), they become restricted securities, even if they were not restricted when owned by the affiliate.

Affiliate/Control Person

  • A person or entity who has control of, is controlled by, or is under common control with the issuing company.
  • Typically an executive, director, or controlling shareholder of the issuing company.


  • A person or entity who buys securities and plans to distribute or resell them.
  • Not able to use the Rule 144 exemption to resell securities.


  • A label or statement on a stock certificate that explains any restrictions on the sale or transfer of the stock

Why Is Rule 144 Important?

As an employee, small business owner, or investor, you may own some "restricted" or "control" securities. These are usually given in the following situations:

  • As a part of an employee benefits package
  • As compensation for professional services
  • In exchange for "seed-money" or start-up capital
  • As a part of a merger and acquisitions (M&A) transaction

Rule 144 is important because it provides an exemption under which you can sell these securities in the public stock market without registering them with the SEC. Investors and shareholders in private offerings have the opportunity to resell their restricted securities, which makes them more valuable than if you held onto them indefinitely.

Does Rule 144 Apply to Me?

Rule 144 applies if you are:

  • a non-affiliate shareholder who wants to sell their restricted securities
  • an affiliate of the issuing company who wants to sell their securities (whether they are restricted or "free trading") into the public market

Rule 144 does not apply to:

  • sales in the public market that involve a brokerage firm
  • private transactions, including sales, gifts, estate distributions, and pledges (but will apply when the recipient wants to sell the restricted stock to the public market)

Conditions of Rule 144

To sell your restricted or control securities to the public under Rule 144, you must meet five conditions. Note that although Rule 144 is not the only way to sell such securities, it is the most commonly used and provides a "safe harbor" for sellers.

1. Holding Period

  • You need to hold the securities for a minimum length of time (the "holding period").
  • If the company that issued the restricted securities is a "reporting company" (subject to the reporting requirements of the SEC), the holding period is at least 6 months.
  • If it is not a reporting company, then the holding period is at least 12 months.
  • The holding period begins on the date the buyer pays for the securities.
  • If you received the securities as a gift from an affiliate, the holding period began when the affiliate acquired them, not on the date of the gift.
  • This holding period only applies to restricted or control securities — not securities purchased in the public market, which are not restricted. However, if an affiliate purchases non-restricted securities on the public market, those shares become control securities, and their resale must meet the conditions of Rule 144.

2. Current Public Information

  • Adequate and current information about the issuing company must be publicly available before a sale.
  • Reporting companies must meet the periodic reporting requirements of the SEC.
  • A non-reporting company must reveal the nature of its business, the identity of its officers, and its direction and financial statements (verified by an accountant).

3. Trading Volume Formula

  • There are limits on the number of securities that you can sell in a specific time-period if you are an affiliate of the company.
  • As an affiliate, you can only sell up to 1 percent of the outstanding shares of the same class being sold during any three-month period.
  • If the class is listed on a stock exchange, then the maximum you can sell is the greater of 1 percent or the average reported weekly trading volume during the four weeks preceding the filing of a notice of sale on Form 144. 
  • You can only sell over-the-counter stocks (those quoted on the OTC Bulletin Board and the Pink Sheets) using the 1 percent measurement.

4. Ordinary Brokerage Transactions

  • If you are an affiliate, you must sell through a routine broker-dealer transaction.
  • Your broker may not receive more than a normal commission.
  • Neither the seller nor the broker can solicit orders to buy the securities unless they meet the conditions of Rule 144A (see below).

5. Filing a Notice of Proposed Sale With the SEC:

  • If you are an affiliate who plans to sell more than 5,000 shares or $50,000 worth of securities in any 3-month period, you will need to file a notice with the SEC on Form 144.

If you are not (and have not been) an affiliate of the issuing company, and you have held the securities for more than 12 months, you can sell the securities in the public market without restrictions or needing to meet the conditions of Rule 144. If the issuing company is a reporting company, you may sell your restricted securities after 6 months as long as the Current Public Information condition of Rule 144 is met.

Rule 144 at Play

Several factors affect the start date of your holding period as an owner of restricted stock:

  • If you purchased the stock from an affiliate of the issuing company, the stock becomes "restricted" and the holding period is reset (6 months if you are not an affiliate or 12 months if you are an affiliate).
  • If you purchased the stock from someone who is not an affiliate of the company, the holding period begins on the date that they purchased the stock.
  • If you purchased the stock from an affiliate who later ceased being an affiliate, the holding period begins on the date you purchased the stock. You cannot tack on the seller's holding period.
  • If you receive stock in exercise of a "cashless option" or "cashless warrant" (i.e. you do not pay cash, property, or service in exchange for the stock), the holding period begins on the date when the cashless feature was originally included in the option or warrant or on the date of any separate consideration you gave for an amendment. 
  • If you receive stock as a gift, the holding period begins when the donor's holding period began, even if they were an affiliate of the issuing company.
  • If you receive stock in payment for services, the holding period begins when you have fully performed the services or as stipulated in your contract.

Frequently Asked Questions

  • If I meet all the conditions under Rule 144, do my shares simply become "free trading?"

No. "Free trading" shares do not exist under Rule 144. Rule 144 is a transactional exemption that allows the sale of restricted stock in the public marketplace once certain conditions are met. Meeting the conditions does not make the securities "free trading."

Even if you have met the five conditions of Rule 144, you can not sell your restricted securities until you have gotten the restrictive legend removed from the certificate. Only a transfer agent can remove the legend, and they cannot do so without the consent of the issuing company. This consent typically comes in an opinion letter from the issuing company's attorney. Removing your certificate's restricted legend, or stamp, can take a long time, and you may need legal help.

  • What if a dispute arises over removing the restrictive legend?

The SEC's position is that legends are removed at the discretion of the issuer of the securities. State law — not federal law — covers such disputes, and thus the SEC will not get involved.

  • When do I need to get a legal opinion in regards to Rule 144?

Rule 144 does not require you to get a legal opinion. However, the transfer agent and issuing company will need legal opinions before removing the restrictive legend on your stock certificates. A legal opinion helps protect the transfer agent, issuer, and broker from a charge of violating the Securities Act of 1933.

  • What are secondary private markets?

SecondMarket and SharesPost are secondary private markets for securities from private companies. Employees and investors can use these stock trading markets to sell shares that they received in a Regulation D offering or other private offerings and that meet the conditions of Rule 144.

It is important to note that Rule 144 only applies to those who purchased securities for their own investment purposes, without the intention to distribute or resell from the outset. If you buy restricted securities and publicly state or clearly show that you plan to resell as soon as legally possible, you may lose the ability to do so under Rule 144.

  • What is Rule 144A?

Rule 144A is an SEC rule that permits qualified institutional buyers (QIBs) to trade private securities among themselves. It was revised in 2013 to allow the use of general solicitation as long as the purchasers are limited to QIBs. Rule 144A has increased the liquidity of private securities by letting companies list them and trade among themselves, sidestepping limitations in place to protect the public.

It is currently unclear whether securities acquired in a Title III/Section 4(a)(6) equity crowdfunding offering would qualify for resale under Rule 144. Section 4(a)(6) does not define these securities as restricted under Rule 144. However, the section does explicitly subject the resale of such securities to a one-year holding period unless it is resold to the issuer, to an accredited investor, in a registered offering, or to a family member of the purchaser (or related to the death, divorce or similar situation of the purchaser).

  • How does Rule 144 apply in a Merger and Acquisitions (M&A) transaction?

There are several possible scenarios to consider based on whether the M&A is registered (a Public Merger) or unregistered (a Private Merger) and whether the target shareholder is an affiliate or non-affiliate.

  • Public mergers where the target shareholders are non-affiliates do not fall under Rule 144, as these shareholders are free to resell their securities in the public market (the securities were not restricted).
  • Should a shareholder who received shares as a part of a private merger wish to resell those shares in the public market, they would need to comply with the conditions of Rule 144 to do so as outlined above.
  • If an affiliate of the issuing company acquires stock in a public merger, this stock becomes control stock and is subject to the conditions in Rule 144.
  • Is there a "blackout period" when I cannot use Rule 144 to Sell my Securities?
    • If you are an affiliate of an issuing company that does not meet the Current Public Information condition, then you may not use Rule 144.
    • If you are a non-affiliate of the issuing company that is a reporting company but not current with its SEC filing, then you may not use Rule 144 to sell your restricted securities within the 6-12 month holding period.
    • You may not use Role 144 to sell stock in a shell company or a former shell company unless the company has been filing reports with the SEC for more than 12 months and is a current and active business.

Getting Started

If you as a shareholder meet all the five conditions outlined above, Rule 144 will allow you to sell your restricted securities and get the restrictive legend removed. You will need to obtain an opinion of counsel stating that the sale is eligible for the Rule 144 exemption (the Rule 144 Opinion Letter).

Then there are two options for filing your application:

  • Option 1: Broker Submission

You can work with your own securities broker who can help you to collect the necessary documents for the application. Once approved, the stock can be deposited directly into your brokerage account for resale. Affiliates, insiders, and control persons must follow this option.

  • Option 2: Direct Submission

If you are not an affiliate or insider of the issuing company, you can work with a transfer agent to remove the restricted legend on your securities. You will need the original stock certificates, a Rule 144 seller's representation letter, a legal opinion letter from qualified securities counsel, and the applicable fees.  

If you need help with interpreting or applying for a Rule 144 exemption, you can post your question or concern on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.