Can a Pink Sheet Use S-8 Shares to Compensate Consultants Who Raise Capital?

Exchanging Services for Rule 144 Restricted Stock is Common

Among OTCMarkets public companies, it is commonplace for Issuers to pay for consulting services using restricted shares of common stock.   For non-reporting companies, such as Pink Sheets, the usual way is for the CEO and the consultant to enter into a Consulting Agreement which specifies a certain number of shares for a specific scope of work.

This restricted stock is then held for the standard 12 month holding period under Rule 144 before being sold on the market.  Many times, the type of work for which restricted stock is awarded does include activities associated with raising capital, but Rule 144 is the mechanism for clearing the stock, not S-8.

S-8 Can Only Be Used By SEC Reporting Companies

Most Pink Sheets are not SEC filers, but are instead under the OTCMarkets’ Alternative Reporting Standard.  (Due to a recent change in OTCMarkets’ policies governing its OTCQB market tier, many SEC filers saw their OTCQB status change to Pink Sheet when their share price dropped below a penny.)   Because of this distinction, consultants providing services in exchange for true Pink Sheet stock are awarded Rule 144 restricted stock with a 12 month holding period, not S-8 stock, which is free trading.

S-8 Cannot Be Used for Capital Raising Activities

Even if a Pink Sheet was allowed to use S-8, the capital raiser would still be out of luck because stock issued to consultants in exchange for work associated with capital raising cannot be cleared using S-8.  There are no exceptions for this.  In fact, there are 8 requirements for an SEC reporting company to be able to use S-8, and all of them must be met.