Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Wednesday, November 27, 2013

Rule 144′s Safe Harbor For Shell Companies

In 2008, Rule 144 of the Securities Act of 1933, as amended changed the reverse merger process in going public transactions by prohibiting shareholders of public shell companies from relying upon its safe harbor.
Rule 405 defines a shell company as a registrant with no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets.

This is an “and” test, not an “or” test.  Thus, if the Company has more than no or nominal operations, it is not a shell company, regardless of whether or not it has any assets.  Additionally, the determination of whether a company is a shell company is not based upon revenues but upon operations, an important distinction.  A company that has more than nominal operations but has not generated revenues is not a shell company within the Rule 405 definition.
Restricted securities issued by a company that was formerly a shell company are only eligible for resale under Rule 144 if the following conditions are met:
♦ The issuer must cease to be a shell company;
♦ The Issuer must be subject to the reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”);
♦ The Issuer must have filed all reports required to be filed under the Exchange Act for the past 12 months other than reports on Form 8-K;
♦ The Issuer must file Form 10 information, to register the class of securities under the Exchange Act.
Form 10 Information can be filed on either a Form 10 registration statement or Form 8-K that contains the disclosures required by Form 10.
If these requirements are satisfied, the holder of the restricted securities can publicly resell the shares in reliance upon Rule 144 beginning one year after the date the 8-K or Form 10 information was filed.
This blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting SEC registration statements, Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting requirements, 1933 Act registration statements on Form S-1, S-8 and 1934 Act registration statements on Form 10, OTC Pink Sheet listings, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855 
www.SecuritiesLawyer101.com

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