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Current Events and Commentary

SEC Reduces Restricted Stock (Rule 144) Requirements, And Expands Small Company Alternative Disclosures

December 2007
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 The Securities and Exchange Commission (SEC) unanimously adopted significant changes that will improve capital formation and reduce disclosure costs for small public companies and their shareholders.

For those wishing background information, Rule 144 provides an exemption from securities’ registration with the SEC. The SEC last made major changes to Rule 144 in 1997. Before the 1997 amendments, a seller could resell (subject to certain volume and other limitations) restricted securities after the seller had held the securities for two years (in some cases, three years). The 1997 amendments changed these two-year and three-year periods to one year.

Changes to Rule 144

Securities Act Rule 144’s holding period provisions and sales disclosures are reduced for issuers that file periodic reports under the Securities Exchange Act of 1934. The new rules shorten the holding periods under Rule 144 for restricted securities of public companies from one year to six months. After the holding period, non-affiliates of the issuer will not be subject to the current volume limitations, manner of sale requirements, or disclosure requirements.

The current one-year holding period remains unchanged for restricted securities of non-reporting companies. The six-month period also does not apply when the security holder is engaged in hedging transactions involving the security at issue.

The limits for sales disclosures on Form 144 for affiliates are raised to 5,000 shares or $50,000 in a three-month period. Debt securities will not be subject to the Rule 144 restrictions. Those who have not been affiliates with the issuer for three months no longer have any filing requirements.

The amended rules will make Section 144 securities more valuable because these securities will now have significant greater liquidity.

Small Company Disclosure Changes

The SEC expanded eligibility for the reduced/scaled reporting and disclosure requirements to all companies that have less than $75 million in public equity float. Companies without a calculable public equity float will qualify if their revenues were below $50 million in the previous year. Approximately 1500 additional public companies now will qualify for these eased small-company rules.

The disclosure rules for small companies are simplified by moving the non-financial disclosure requirements for smaller reporting companies contained in Regulation S-B into Regulation S-K, and the financial statement requirements into Regulation S-X. The five SB forms are rescinded.


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