Legal Column

 

SEC Adopts Amendments to Rule 144 Affecting Small Companies

 

By Chris Anderson & Todd Reece- Ballard Spahr Andrews & Ingersoll, LLP

 

The Securities and Exchange Commission recently approved amendments to Rule 144 under the Securities Act of 1933, to become effective on February 15, 2008. These amendments are intended to reduce regulatory requirements on the resale of securities in order to enhance the liquidity of securities sold in private transactions and facilitate capital formation, particularly for smaller companies.

The principal amendments to Rule 144 include:

(i) Shortening the holding period for restricted securities of reporting issuers (essentially publicly traded companies) from one year to six months for both affiliates and non-affiliates;

(ii) Permitting non-affiliates of non-reporting issuers (essentially private companies) to resell restricted securities of non-reporting issuers after satisfying a one year holding period;

(iii) Permitting non-affiliates of reporting issuers to resell restricted securities of reporting issuers without regard to the volume limitations, manner of sale or Form 144 filing requirements upon satisfying the Rule 144(d) six-month holding period (provided the issuer complies with public information requirements until the securities have been held for one year); and

(iv) Eliminating all restrictions except for the "current public information" requirement for restricted securities held by non-affiliates of reporting companies after six months, and eliminating all restrictions for restricted securities held by non-affiliates of all companies after one year.

The SEC provided the following table summarizing the new re-sale restrictions:

The SEC's amendments to Rule 144 summarized above will allow investors such as venture funds and other security holders to sell restricted securities more readily, should enable smaller companies to raise capital more effectively, and will ease some of the burdens of the SEC's reporting and disclosure requirements applicable to such companies. The amendments will be applicable to securities acquired before and after the February 15, 2008 effective date.

 

Launch - Spring 2008

 

 

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