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Maintaining a clean, paper trail of securities transactions is a prevailing issue for many companies. At the nexus of this is SEC Rule 144, which stipulates that certain conditions must be met in order for the sale of securities to take place.
The effective tracking of securities is vital for private companies seeking to enter the public marketplace. Steering clear of knotty compliance issues and delays pursuant to any SEC due diligence reviews is paramount.
A key qualifier for the Rule 144 exemption is meeting the holding period for each security issued prior to resale. Pursuant to the Securities Exchange Act of 1934, an issuing company that’s also a reporting company has a qualifying holding period of six months. For those companies that are not in a reporting capacity, the qualifying holding period is one year.
This holding period commences on the original issuance date of the security, irrespective of resale or conversion. Many private companies, however, fail to track and account for this on their capitalization tables. This can be problematic if an audit is ever conducted.
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