What is a Rule 144 Legal Opinion Letter?
A Rule 144 legal opinion is a letter drafted by a securities attorney to a Transfer Agent that states whether or not a specific transaction complies with the requirements of SEC Rule 144. Rule 144 has separate elements or requirements that must be met, and supported with documentation, in order for a restricted stock certificate to be cleared for sale under Rule 144.
One of the requirements for compliance with Rule 144 is that the Issuer is not a shell company.
What is a Shell Company under Rule 144?
A shell company under SEC Rule 144 is an Issuer that has either
- No operations or nominal operations;
- Assets that consists only of cash and cash equivalents; or
- Assets that consist of any amount of cash and cash equivalents and nominal other assets.
What if the Issuer Used to Be a Shell Company But is Not Currently a Shell?
If the Issuer was ever classified or declared a shell company in its past, then the Issuer must have provided current public information for a minimum period of time since it ceased to be a shell, and it must be current in its reporting to the SEC, not under the OTC Markets Alternative Reporting Standard.
SEC Reporting Companies That Used to Be a Shell under Rule 144
For SEC reporting companies that file Forms 10-Q, 10-K and 8-K, these Issuers must be current in their SEC quarterly and annual report filings. If the Issuer was ever a shell in its past, it must have filed these reports for at least 12 months since it stopped being a shell.
These Issuers will be quoted on the OTC Markets OTCQB or OTCQX market tiers. They may also be quoted on the OTC Bulletin Board, if the Issuer has chosen to apply for OTCBB. But a current SEC reporting company that is “fully reporting” will be shown as an OTCQB, at least, on OTCMarkets.com.
Pink Sheets That Used to Be a Shell under Rule 144
Non SEC reporting companies (Pink Sheets) that are subscribed to OTC Markets OTCIQ system, will be shown as a “Pink Current” Issuer on OTCMarkets.com, meaning that the Issuer is current in its quarterly financials, annual financials and disclosure statement filings under the Alternative Reporting Standard.
If a Pink Sheet public company was ever a shell in its past, broker-dealers and clearing firms are not likely to ever accept a Rule 144 legal opinion to clear its stock even if it has ceased being a shell. This is true under Rule 144 no matter how long ago the Pink Sheet ceased to be a shell.
Pink Sheets that are not current in their filings will be shown as “Pink Limited Information” or Pink Yield Sign, while those Pink Sheets that have missed several filings will be shown as “Pink No Information” or Pink Stop Sign.
Shareholders of Pink Sheet Issuers that were formerly shells can contact Matt Stout, securities attorney for further information on other SEC provisions which may be useful in clearing their Shares under the facts specific to their case.