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Restricted Securities: Drafting Contractual Restrictions, Rule 144 Safe Harbor, Section 4(a)(1) Exemption

Recording of a 90-minute premium CLE webinar with Q&A

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Conducted on Tuesday, March 5, 2019

Recorded event now available

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This CLE course will examine the existing regulatory framework around "restricted securities" (RS), and the avenues available for issuers and investors to offer and sell RS. The panel will also discuss the contractual restrictions that issuers often place on the transfer of RS and key provisions that allow for flexibility on future transfers.


With the development of new funding methods for startup and early-stage companies, the treatment of RS has assumed greater importance. Failure by the issuer to properly restrict transfer can impact not only the security holder but also subject the issuer to liability for an unregistered public offering. New non-registered capital raising vehicles such as crowdfunding under Rule CF introduce different concepts of RS.

Rule 144 is the most frequently used safe harbor for the resale of RS. Rule 144, under most circumstances, dictates a minimum holding period, sale volume limitation, notice of sale, issuer information availability, and manner of sale. In some cases, all restrictions disappear with the passage of a holding period.

The so-called Section 4(a)(1½) exemption also is available for resales of restricted securities. This exemption is a case law-derived exemption that allows the resale of privately placed securities in a subsequent private placement. Affiliates of issuers--executives, directors and large holders of issuer securities--need to be aware of their obligations under Rule 144.

Many private issuers of securities contractually impose transfer restrictions beyond the legal requirements to keep securities out of the hands of competitors, former employees, estate executors, ex-spouses, and the like. It is essential to determine in each case whether particular restrictions are needed for legal compliance, business continuity, or both. As time elapses, issuers and purchasers should address the extent, if any, to which legal restrictions lapse, removing legends from physical certificates and allowing transfers if contractual restrictions are satisfied.

Listen as our authoritative panel discusses the implications of selling securities characterized as RS, and the safe harbors and exemptions that allow for the future transfer of RS. The panel will also discuss how contractual restrictions on transfer can be used to protect the company while allowing for future transfers when the restrictions are no longer needed.



  1. Definition of restricted securities (RS)
  2. Registration and disclosure requirements for subsequent offering of RS
  3. Exemptions and safe harbors allowing for resale
    1. Rule 144 initially
    2. Rule 144 over time
    3. Rule 144A
    4. Section 4(a)(1½)
    5. Rule CF
    6. Reg A+
  4. Contractual restrictions and alternatives on and for sale of RS
    1. Purpose--preventing transfer of shares to competitors, former employees, other parties
    2. Drafting provisions regarding expiration and allowing for flexibility
    3. Registration covenants to facilitate liquidity: (a) demand) (b) piggyback
    4. Puts vs. calls vs. rights of first refusal
    5. Other legal areas, especially employment law


The panel will review these and other high priority issues:

  • What kinds of transactions or circumstances might result in the issuance of securities deemed to be RS?
  • Who are the key players?
  • What are the regulatory issues associated with a subsequent sale or transfer of RS?
  • What options are available to a security holder who desires to resell RS without a registered offering?
  • When are contractual restrictions on future transfer desirable in connection private offering?
  • What is the proper role of counsel in transactions and situations involving RS?


Papkin, Steven
Steven C. Papkin


Mr. Papkin uses his experience in corporate, securities and intellectual property law to advise companies in a wide...  |  Read More

Martin B. Robins


Mr. Robins practices extensively in the general corporate and corporate governance, M&A, finance, intellectual...  |  Read More

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