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Chapter 13. The Public Offering Process > Selling Shares That Are Exempt from R...

Selling Shares That Are Exempt from Registration

A private placement is, in principle, an issuance to a limited number of investors who are able to “defend themselves” and therefore do not require the protection afforded by the securities rules (except for the prohibition on the employment of manipulative and deceptive devices pursuant to Rule 10b-5, which applies in any case). Shares, the sale of which is exempt from registration, are “restricted” shares, and their sale is allowed pursuant to special rules fixed in Rule 144 of the U.S. securities rules. A private sale by a non-listed company (an issue discussed in the section on legal restrictions according to U.S. law) should be distinguished from the sale of shares within an exemption from registration during or after a public offering, on which this section focuses.

Rule 144

Rule 144 regulates the sale of restricted shares which were purchased from the company or from an affiliate of the company under an exemption from registration. The rule entirely prohibits the sale of the shares for a period of one year after they are bought, other than through a registration under the Securities Act or an exemption thereof; thereafter, a limited sale is allowed. The rule states that in the second year, the larger of the following two quantities may be sold every three months: 1% of the offered shares, and the average weekly trade volume in the four weeks preceding the sale. Once the two years are up, the shares are released for trade if their holder is a non-affiliate of the company, or continue to be subject to the sale restrictions if they are held by the company itself or by an affiliate. Additional restrictions on sales under Rule 144 pertain to the requirement of full information about the company (a requirement which is usually filled anyway when the company is subject to U.S. reporting regulations), a duty to report every sale, and technical restrictions on the manner of sale (broker transaction).


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