Stephanie J. Nyman
GR Review

Effective February 15, 2008, in an effort to improve smaller companies’ ability to raise capital, the Securities and Exchange Commission (“SEC”) significantly simplified several requirements regarding the resale of restricted securities.  The most sweeping and wide-reaching change is the reduction of the required holding period of restricted securities issued by a publicly traded company from one year to six months.  Therefore, if an investor purchases securities of a publicly traded company in an unregistered, private offering, the investor must now only hold those securities for six months before reselling them in the public market without complying with SEC registration requirements.  (Note that the holding period for restricted securities of a privately held company remains one year.)

Furthermore, if the investor is not an affiliate of the issuing company (regardless of whether the issuing company is publicly traded or privately held), the investor can sell the restricted securities freely after the holding period has passed, and is no longer required to file a Form 144 with the SEC.  If the investor is an affiliate of the issuing company (a person or entity that controls, is controlled by, or is under common control with the issuing company, including officers, directors, and large shareholders), it may be subject to certain volume limitations governing how many restricted securities it can sell after the holding period has passed.  Affiliates may still be required to file Form 144 with the SEC prior to reselling restricted securities, but the threshold for filing the Form has increased from the sale of 500 shares or $10,000 worth of securities, to 5,000 shares or $50,000 worth of securities.

The SEC anticipates that these changes will make restricted securities more attractive to potential investors, make it easier for smaller companies to raise capital in private offerings instead of incurring the expense of a public, registered offering, and increase the use of restricted stock as a form of payment in mergers and acquisitions.

Stephanie Nyman is an Associate in Gould & Ratner's Corporate and Commercial Group.  If you have questions regarding these changes or any other matter concerning restricted stock, you may contact Stephanie at 312.899.1642 or via email at snyman@gouldratner.com.