Tag Archives: anti-dilution shares under Rule 144

Are Shares Acquired By Anti-Dilution Rights Restricted Under Rule 144?

Anti-Dilution Rights Allow Shareholders to Maintain Their Ownership Percentage

In many cases, Shareholders who purchase restricted stock from an OTC Bulletin Board (“OTCBB”) or OTC Markets Pink Sheet Issuer in a Private Placement will be granted “anti-dilution” rights allowing them to increase and thereby maintain their ownership percentage in the public company even when the Issuer offers more shares to subsequent Investors.  The same is true for investors in NASDAQ and NYSE MKT securities.

Shares Acquired Under Anti-Dilution Clauses are Restricted Securities

When a Shareholder acquires more stock pursuant to the anti-dilution rights clause in that Private Placement, the new shares are considered restricted securities under SEC Rule 144.

What Is the Rule 144 Holding Period for the Anti-Dilution Shares?

Under SEC Rule 144, shares acquired by the exercise of anti-dilution rights in a Private Placement or other offering does not begin on the date the Transfer Agent issues the new shares.

The Holding Period Dates Back to the Original Purchase of Shares

As a benefit to Shareholders, since the acquisition of the Anti-Dilution shares was automatic, and not within the Shareholder’s control, the holding period on the Anti-Dilution shares dates back to the original purchase of shares, and not the exercise of the anti-dilution rights.

Shareholder who have purchased restricted stock under Private Placements can contact Matheau J. W. Stout with questions about anti-dilution rights or Rule 144 at (410) 429-7076 or mstout@otclawyers.com.