Restricted Securities and Rule 144 - Explained
Rule 502(d) and Rule 144 Safe Harbor
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Table of ContentsWhat is a Rule 502(d) and Rule 144 Safe Harbor?Discussion QuestionPractice QuestionAcademic Research
What is a Rule 502(d) and Rule 144 Safe Harbor?
Rule 502(d) requires that issuers of securities pursuant to an exemption under Regulation D take the following three steps to make certain the shares are not resold during the restricted period:
- reasonable inquiry to determine if each purchaser is buying the security for himself or for someone else,
- written disclosure to each purchaser that the securities are restricted, and
- a legend on the securities noting the resale restriction.
The SEC promulgated Rule 144, which allows a safe harbor for purchasers to resell their shares after one or two years, depending on how much public information about the issuer is available. In any case, the issuer must make certain that the shares are not being purchased with the intent of immediate resale. This safe harbor rule provides additional comfort to a purchaser of the security. As such, it adds liquidity to the security by making it easier to later sell and trade in the market.
Next Article: Disclosure Requirements of Regulation D Back to: SECURITIES LAW
- Registration Exemptions Securities Act of 1933
- What are Exempt Securities and Exempt Transactions?
- What are Restricted Securities?
- Section 3(a)?
- Section 3(b)?
- What is a Rule 147 Exemption?
- What is a Section 4(a) Exemption?
- Section 4(a)(5)?
- What is a Regulation A Exemption?
- What are Regulation D Exemptions?
- What is a Rule 504 Exemption?
- What is a Rule 505 Exemption?
- What is a Rule 506(b) Exemption?
- What is a Rule 506(c) Exemption?
- What is Rule 502(d) and the Rule 144 Safe Harbor?
- Rule 144a
- What are the disclosure requirements for companies employing an exemption?
- What is the requirement to file Form D?
- What is the effect of failing to register an offering under Section 5?
What do you think is the underlying purpose or rationale for Rule 502(d) and Rule 144? Do you think these rules are adequate to achieve their objectives? Why or why not?
ABC Corp issues securities pursuant to Rule 505 registration exemption. Kerry is a purchaser of securities. He realizes that the shares are restricted for a substantial period. What should ABC Corp and Kerry do to make certain that later reselling the shares does not potentially violate the Rule 505 offering?