Major Changes to Rule 144 – Small Businesses Rejoice

By Ira R. Halperin

On November 15, 2007, the Securities and Exchange Commission (SEC) voted unanimously to adopt several rule amendments designed primarily to enable smaller companies to raise capital more effectively and ease some of the historically burdensome reporting and disclosure requirements. In particular, the SEC adopted certain amendments to Rule 144 under the Securities Act of 1933, as amended (the Securities Act), most significantly the shortening of the minimum holding period from one year to six months for resales of “restricted securities” (securities acquired in unregistered, private sales from the issuer or an affiliate of the issuer, which is a person or entity who is controlling, controlled by or under common control with the issuer) of “reporting companies” (issuers subject to the reporting requirements of Section 13 or 15(d) of the Securities Act of 1934, as amended (the Exchange Act)).

Section 5 of the Securities Act generally requires that stock and other securities be registered with the SEC prior to their offer or sale, unless the transaction or the securities themselves are exempt from registration. Rule 144, originally adopted by the SEC in 1972, provides a safe-harbor setting forth when, and under what conditions, restricted securities may be resold into the public marketplace without registration under the
Securities Act…

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