Rule 144 Explained: A Complete Guide to Selling Restricted Stock and Stock Options

For employees, founders, and investors, Rule 144 is the SEC rule that decides when and how you can resell restricted and control securities, including stock acquired through stock options. 

This guide breaks down what Rule 144 says, how it applies to stock options, and what steps you need to follow before selling.

What is Rule 144?

Rule 144 is an SEC safe harbor exemption that allows the public resale of restricted and control securities if certain conditions are met. Public resale means selling shares into the open market, such as on NASDAQ or NYSE, where they can be purchased by any investor. 

It’s important to note that Rule 144 doesn’t apply to private-company secondaries (those rely on different exemptions). 

But the moment a company goes public, Rule 144 governs when and how those previously restricted shares can be sold. Without Rule 144, employees, founders, and early investors would face heavy registration requirements each time they wanted to sell, making resale after an IPO far more difficult.

What does Rule 144 actually say?

At its core, Rule 144 says:

Restricted and control securities may be sold publicly if the seller has met the required holding period, the company has made current information available, and (for insiders) sales follow volume and manner-of-sale limits with Form 144 filed when necessary.

What are restricted and control securities?

Restricted securities

• These are shares acquired in private transactions. For example, private placements, Regulation D offerings, or stock options.
  
• These shares are marked with a restrictive legend, which means they cannot be sold in the public market until certain conditions are met and the legend is removed through the company’s transfer agent.
  
• Most employees with stock options will find themselves holding restricted securities.

Control securities

• Shares held by affiliates of the company. An affiliate is someone with the power to influence company decisions, typically executives, directors, or shareholders with more than 10% ownership.
  
• Whether the shares were acquired through the open market or a private placement, they are treated as restricted when resold because of who owns them.
• This is why insider sales are subject to extra rules like volume limits and Form 144 filings.
  

Rule 144 conditions

To resell restricted or control securities under Rule 144, five main conditions must be satisfied. Together, they act as substitutes for a full SEC registration.

1. Holding period

a. Restricted securities

Six months if the company is public and files regular SEC reports. 

Twelve months if the company is private or does not file with the SEC. The clock starts from the date you fully paid for and received the shares. For example, if you exercised stock options today and your company IPOs two years later, you’ve already satisfied the Rule 144 holding requirement by the time of the IPO. But if the company has no plans to go public, Rule 144 doesn’t enable you to sell, private secondaries use different exemptions (like Section 4(a)(1½) or Reg D). The shares remain restricted until some liquidity event.

b. Control securities

There is no fixed holding period, but insiders who hold control securities must still follow the other Rule 144 conditions, including limits on how much can be sold, manner of sale, and filing Form 144. 

2. Volume limits (for affiliates)

Affiliates such as executives, directors, or large shareholders can only sell a limited amount in any three-month period. This limit is set at the greater of 1 percent of the company’s total outstanding shares of that class or the average weekly trading volume over the past four weeks.

Non-affiliates are not subject to these limits once their holding period has expired.

3. Current public information

Before resale, enough information about the company must be available for investors to make informed decisions.

• For public companies, this means timely SEC filings such as 10-Ks and 10-Qs.
• For private companies, the rule says they would need to publish business details, management info, and financials. 

This must be done at the time of each sale when multiple sales occur across a period.

4. Manner of sale (for affiliates)

Sales must be executed through ordinary brokerage transactions with no special deals or promotional efforts. Brokers cannot solicit buyers and commissions must be in line with normal rates.

This ensures that insider sales do not distort the market.

5. Form 144 filing

Separately, affiliates must file a Notice of Proposed Sale (Form 144) with the SEC if they intend to sell more than 5,000 shares or shares worth more than $50,000 in a three-month period.

The form must be filed before or at the time of sale and gives the market notice of insider sales. The sale generally must occur within 90 days of the filing or a new Form 144 is required

Non-affiliates are exempt once they have met their holding period and public information requirements.

Final takeaway

Rule 144 may sound like securities-law jargon, but for employees, founders, and investors it is the rule that determines when shares from stock options and other restricted stock can be sold.

For employees there is a 6–12 month holding period before resale depending on the type of company, while affiliates are subject to volume limits, manner-of-sale rules, and Form 144.

FAQs on Rule 144

1. What is Rule 144?

Rule 144 is a U.S. SEC regulation that provides a safe harbor exemption for selling restricted and control securities. It allows shareholders such as employees with stock options or company insiders to resell their shares in the public market without registering them with the SEC, as long as certain conditions are met. These include a minimum holding period, company disclosure requirements, limits on the number of shares that can be sold by insiders, and filing Form 144 when required.

2. What does Rule 144 say?

Rule 144 says that restricted and control securities may be sold publicly if the seller:

• Has completed the required holding period (six months for reporting companies, twelve months for non-reporting).
• Ensures the company has made current public information available.
• Follows volume and manner-of-sale limits if they are an affiliate.
• Files Form 144 with the SEC if the sale exceeds the set thresholds.

In short, Rule 144 lays out the conditions that make it legal to sell restricted or insider-owned stock in the open market.

3. Is Form 144 bullish or bearish?

Form 144 is a filing that company insiders must submit to the SEC to notify their intent to sell shares when the planned sale exceeds specific size thresholds.

Some investors view Form 144 filings as bearish because insider selling can signal reduced confidence. However, insiders often sell shares for neutral reasons such as diversification, tax planning, or personal liquidity. A single Form 144 filing does not always indicate bad news, and the context of the sale matters more than the filing itself.