SEC Rule 144: Selling Restricted and Control Securities

Most tech employees don't think about Rule 144 until they try to sell their shares and the broker puts a hold on the transaction. Rule 144 (17 C.F.R. § 230.144) governs when and how "restricted" and "control" securities can be sold in public markets without SEC registration. If you're a senior executive, a director, a 10%+ shareholder, or an early employee with shares received in a private transaction, this rule applies to you — and the penalties for getting it wrong include disgorgement, civil fines, and potential criminal charges.

Two categories of securities covered by Rule 144

Restricted securities

Shares acquired in a private, unregistered transaction. Common examples for tech employees and founders:

• Shares purchased via early exercise of ISOs or NSOs before a company's IPO
• Shares received under a Section 83(b) election on unvested restricted stock at a private company
• Shares received in a private placement (e.g., a secondary sale from a company-sponsored tender offer)
• Shares received as part of a private M&A transaction (stock-for-stock deal in a private company)

These shares are typically stamped with a restrictive legend and cannot be freely sold. To sell them publicly, either SEC registration or a valid exemption — most commonly Rule 144 — is required.

Control securities (affiliate shares)

Any company shares held by an "affiliate" — regardless of how they were obtained. Under Rule 144, an affiliate is a person who "controls, is controlled by, or is under common control with" the issuer.¹ In practice, the SEC treats these as affiliates:

• Officers (CEO, CFO, COO, General Counsel, and typically VP-level and above at larger companies)
• Directors
• Shareholders owning 10% or more of outstanding shares

If you're an affiliate, Rule 144 applies to all your company shares — including shares received as W-2 RSU income that are otherwise freely tradeable by non-affiliates. The affiliate status creates volume and filing obligations regardless of how you received the stock.

The five conditions for a valid Rule 144 resale

A Rule 144 resale is valid only if all applicable conditions are met. Not all conditions apply to all sellers — the requirements differ between affiliates and non-affiliates, and between public and non-public issuers.

Condition 1: Holding period

Before you can sell, you must have held the securities for a minimum period:²

The holding period clock starts when you paid "full value" for the securities — typically the date you paid cash to exercise options, or the date shares were delivered to you. For ISOs and NSOs exercised for cash, the clock starts at the exercise date. For restricted stock subject to a Section 83(b) election, it starts at the grant date (when you paid the purchase price). For shares received in a lock-up that expired, the original acquisition date controls.

Tacking: If you acquired securities from someone else via a private transaction (not from the issuer), you can sometimes "tack" the seller's holding period onto your own. This is a complex area — consult securities counsel before relying on tacking.

Condition 2: Current public information

The issuer must be current in its SEC reporting obligations — annual reports (Form 10-K), quarterly reports (Form 10-Q), and current reports (Form 8-K) all filed on time. This condition does not apply to non-affiliates who have held for at least 12 months in a non-reporting company, and it does not apply in the same way to foreign private issuers.

For most sellers at established public tech companies (Alphabet, Meta, Microsoft, major unicorns that IPO'd), this condition is almost always satisfied. It becomes material if the company is delinquent in its SEC filings — which can happen during restatements or during an acquisition process where reporting is suspended.

Condition 3: Volume limits (affiliates only)

This is the condition that most often catches executive sellers off guard. Affiliates cannot sell more than the greater of:¹

• 1% of the outstanding shares of the class being sold, or
• The average weekly reported trading volume during the four calendar weeks preceding the date of the Form 144 filing

This limit applies over any rolling three-month period. You cannot aggregate multiple sales into a single Form 144 to reset the clock — all sales in the 90 days before a new sale are counted toward the limit.

For rank-and-file executives at large-cap companies (where shares outstanding is in the billions), the 1% limit is rarely binding. But at smaller companies — especially recently-IPO'd firms where a founder or executive holds a large percentage — the volume limits can meaningfully constrain how quickly you can diversify.

Condition 4: Manner of sale (affiliates only)

Affiliates must sell through one of these methods:¹

• Broker transactions: Executed through a broker who receives only the normal commission and does not solicit orders to buy the securities
• Directly with a market maker
• To institutional investors in transactions exempt from registration

This means affiliates generally cannot sell directly to individual buyers in private transactions without SEC registration or another exemption. In practice, most sales are executed through a standard brokerage account on an exchange, which satisfies the broker transaction requirement.

Condition 5: Form 144 notice (affiliates only)

Affiliates must file Form 144 with the SEC concurrently with (or before) the sale if the sale exceeds 5,000 shares or $50,000 in value within any three-month period.³

As of April 13, 2023, Form 144 must be filed electronically through EDGAR — paper filings are no longer accepted for issuers that file their Exchange Act reports on EDGAR. To file, you need an EDGAR account (CIK and access codes). Companies typically have their outside securities counsel handle Form 144 filings, but the legal obligation falls on the selling insider.

Non-affiliates with restricted securities: what changes after 12 months

If you are not an affiliate and have never been an affiliate in the past 90 days, Rule 144 is substantially simpler:

• 6-month hold at a public company: you can resell freely, subject only to the current public information requirement
• 12-month hold at a public company: you can resell freely with no restrictions whatsoever (no Form 144, no volume limits, no manner-of-sale requirements)
• 12-month hold at a non-reporting/private company: same complete freedom as above once 12 months have passed

This is the scenario for many early employees who exercised options and then left the company before it went public. Once the company is public and the 12-month holding period has passed (or 6 months if public during the entire holding period), the shares can be sold freely — assuming you are not and have not recently been an affiliate.

Rule 144 and the 180-day IPO lockup

When a company goes public, underwriters typically impose a 180-day lockup period preventing insiders, officers, directors, and large shareholders from selling. The lockup is a contractual restriction — separate from (and in addition to) Rule 144.

After the lockup expires, two separate analyses apply:

1. Lockup expiration — the contractual restriction lifts
2. Rule 144 compliance — if you're an affiliate, volume limits, Form 144, and manner-of-sale requirements still apply

Importantly, the holding period clock does NOT pause during the lockup. If you held restricted shares for 9 months before the IPO and the lockup lasts 6 months (total: 15 months), you've satisfied the 12-month requirement and can sell freely after the lockup if you're a non-affiliate. Affiliates still need to comply with volume limits and Form 144 regardless of how long they've held.

See the IPO lockup expiration strategy guide for a full analysis of how to time post-lockup sales, including STCG vs LTCG holding period math and 10b5-1 setup during the lockup itself.

How Rule 144 interacts with 10b5-1 plans

A 10b5-1 plan provides an affirmative defense against insider trading allegations under Rule 10b-5 — it does not exempt you from Rule 144. If you're an affiliate operating under a 10b5-1 plan, you must still:

• Stay within the 90-day volume limits (the plan should be sized accordingly)
• File Form 144 before or concurrent with each qualifying sale
• Sell only through permitted broker transactions

Well-designed 10b5-1 plans are explicitly structured to stay within Rule 144 volume limits. If yours isn't, or if the plan was set up by someone who didn't build in Rule 144 headroom, you may be inadvertently exceeding the limits on heavy vesting or refresh grant quarters.

The 2022/2023 SEC amendments to Rule 10b5-1 added a mandatory 90-day cooling-off period for directors and officers before any plan-pursuant sale can begin (or until the next earnings release, whichever is later). This is separate from Rule 144's holding period — both must be satisfied independently.

See the 10b5-1 trading plans guide for the full compliance framework, including the 2023 amendments and single-plan limits.

Practical scenarios

Scenario 1: Pre-IPO employee with early-exercised ISOs

You exercised ISOs at $0.50/share three years before the IPO and filed a Section 83(b) election. After the 180-day lockup expires, you want to sell 50,000 shares at $45/share ($2.25M).

Analysis: You've held for well over 12 months. If you are not an affiliate (not an officer, director, or 10%+ holder), you can sell freely — no Form 144, no volume limits. If you are an affiliate, you need a Form 144 (sale exceeds $50K), and your sale is capped at the greater of 1% of shares outstanding or the average weekly volume. Either way, the holding period is satisfied.

Scenario 2: VP of Engineering selling RSUs at a public company

Your company's legal team has told you that you are an "affiliate" given your VP title and access to MNPI. You receive 2,000 RSUs quarterly that vest and deliver as freely tradeable S-8 shares. You want to sell 8,000 shares ($400K).

Analysis: Even though your RSU shares are registered on S-8, the affiliate designation means Rule 144 applies. You'll need Form 144 for the sale (exceeds $50K) and must stay within the 90-day volume limit. The 10b5-1 plan your company set up for you should already account for this — confirm with your company's securities counsel that the plan was sized to stay within the volume limit.

Scenario 3: Founder holding restricted stock two years after IPO

You co-founded the company, hold 8% of shares outstanding, and have been CEO for 6 years. You want to sell $10M of stock to buy a home.

Analysis: As a 10%+ shareholder and CEO, you're a clear affiliate. The 6-month holding period is satisfied, but you face volume limits and Form 144 filing. At 1% of shares outstanding, $10M may represent multiple 90-day windows. You'll likely need a 10b5-1 plan to execute the sale systematically. A Rule 144/10b5-1 advisor should model the timeline before you commit to the purchase.

Common mistakes that create liability

• Selling before the holding period clock starts. The clock starts when you pay full consideration — not when the board approves, not when the grant is made, not when the options become vested.
• Forgetting that affiliate status attaches to all shares. Insiders sometimes try to segregate "restricted" from "unrestricted" shares. Rule 144's affiliate volume limits apply to all shares of the class, regardless of how they were acquired.
• Not filing Form 144 electronically. Paper Form 144 filings have not been accepted since April 13, 2023. An unfiled or paper-filed Form 144 means the Rule 144 exemption is unavailable for that sale.
• Counting the lockup period as satisfying the holding period for Rule 144. The lockup and the holding period are separate concepts. One does not satisfy the other.
• Aggregating across family members or controlled entities. Volume limits aggregate across all accounts under your control — spousal accounts, family trusts, LLCs you manage. The limit is per person-affiliate, not per account.

Who typically needs outside help with Rule 144

Rule 144 compliance is handled jointly by securities attorneys (who structure the sale and file Form 144) and financial advisors (who optimize the timing, tax impact, and post-sale reinvestment of proceeds). You need both:

• Securities attorney: Reviews affiliate status, confirms holding period, files Form 144 on EDGAR, coordinates with the transfer agent to remove the restrictive legend from certificates or book-entry shares
• Financial advisor: Models the after-tax proceeds, times the sale against your other income, coordinates with any 10b5-1 plan, and builds a post-sale investment plan to address the concentration risk you're unwinding

The tax math on a $2–10M block sale is complex: federal capital gains at 15% or 20%, NIIT at 3.8%, California at 13.3% (no preferential rate), New York at 9.65–10.9%, or Washington's 7% capital gains tax above $278K. Timing the sale across tax years, pairing it with loss harvesting, or directing shares to a donor-advised fund instead of selling can shift the outcome by six figures.