If you provide start-up capital to a private company, participate in an employee stock benefit plan or buy stock in a private placement, you may receive what is known as restricted stock. Restricted stock requires some additional steps before you can sell it, but in other ways it is just the same as the stocks you can buy and sell on the open market. The U.S. Securities and Exchange Commission governs the sale of restricted stock through Rule 144, although most rules only apply to sellers affiliated with the company, such as company officers. Non-affiliated sellers must comply only with the holding period requirement.
Fulfill the SEC holding period requirements. From the date the shares are fully paid for, you must hold them at least six months. If the company issuing the stock is subject to the Securities Exchange Act of 1934 reporting requirements, that holding period extends to a full year. Most publicly traded stocks fall under the reporting requirements of the 1934 Act.
Comply with federal reporting requirements. One of the requirements of the 1934 Securities Exchange Act is that a company make periodic reports about its current status. If this type of information about a company is not made public in compliance with the law, no transactions may be effected in its securities, meaning you cannot sell your restricted stock.
Check trading volume. If you are affiliated with the company, you are limited to the amount of restricted stock you can sell in a three-month time period. For publicly traded stocks, you cannot sell more than 1 percent of the average reported trading volume for the prior four weeks. For private stocks, you cannot sell more than 1 percent of the outstanding shares of the same stock class in that three-month period.
Remove the stock legend. You must contact the transfer agent of the issuing company to have a stock legend removed, which frees the stock for trading. Without the consent of the issuer, which may require the involvement of an attorney, you cannot have the legend removed and sell your stock.
Conduct an ordinary brokerage transaction. If you are affiliated with the company, your trade must be routine, with no additional commissions paid to the broker and no solicitations to buy made by either the seller or the broker.
File required notices with the SEC. If you are an affiliated person, you may have to file Form 144 with the SEC no more than three months before you sell your restricted stock. This requirement applies to sales of 5,000 or more, shares or shares with an aggregate value of $50,000 or more, over a three-month period.
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