When is an issuer a shell under SEC Rule 144?

Under SEC Rule 144, an Issuer does not meet the definition of a “shell” if it has more than

  1. Nominal operations;
  2. Assets consisting solely of cash and cash equivalents; or
  3. Assets consisting of any amount of cash and cash equivalents and nominal other assets.

Often, it is easy to tell that a Company is not a shell by looking at its Quarterly or Annual filings–if it has never been “marked a shell,” has substantial ongoing operations and if there is lots of money in the account, as well as land, equipment, intellectual property, leases and contracts are shown, then it is easy to see that the Company does not meet this definition.

However, with many development stage companies, sometimes an Issuer files an OTCMarkets Quarterly Report that shows either $0 or “nothing” on the balance sheet under assets, which makes this a difficult call.  Some securities attorneys would give up at this point.

When this happens, we at the Law Office of Matheau J. W. Stout, Esq. dig further.  If after a thorough examination of the Issuer’s filings, a securities attorney can locate ongoing operations, and substantial assets other than cash, whether they are tangible, such as land and equipment or intangible, such as leases, contracts and IP, then the Issuer is not considered a shell, even if it has an empty bank account.

It is important for a 144 legal opinion written by a securities lawyer to go into detail when discussing a development stage Issuer’s non-shell status for this reason.

Even if an Issuer is found to a current or former shell, experienced securities lawyers like Matt Stout may be able to issue a Section 4(a)(1) legal opinion if the securities are at least Two (2) Years old.

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