What Is the Rule 144(c) Public Information Requirement?

The U.S. Securities and Exchange Commission (SEC) provides a safe harbor under Rule 144 of the Securities Act of 1933. This rule allows for the resale of restricted and control securities in the public market without a formal registration process. These securities are acquired in private transactions from an issuer or an affiliate. To use this safe harbor, one of the conditions that must be met is the public information requirement detailed in Rule 144(c).

This condition mandates that adequate current information about the company must be publicly available at the time of the sale. The intent is to ensure that potential buyers have access to sufficient information to make an informed investment decision. The ways a company can satisfy this condition differ based on its reporting status with the SEC.

The Current Public Information Requirement

The principle of Rule 144(c) is to protect the investing public by ensuring transparency. When an investor considers purchasing securities under Rule 144, they should have access to information about the issuer’s business operations and financial condition. This requirement helps prevent situations where sellers with inside access can sell securities to a public that lacks fundamental data about the company. The SEC has established that this condition must be met at the time each sale is made. The specific criteria for what constitutes “current public information” are defined for two categories of companies: those that file regular reports with the SEC and those that do not.

Compliance for SEC Reporting Companies

For companies subject to the reporting requirements of the Securities Exchange Act of 1934, the path to satisfying Rule 144(c) is clearly defined. The first condition is that the company must have been subject to these reporting requirements for at least 90 days immediately before the sale. The second is that the company must have filed all required reports, such as its annual Form 10-K and quarterly Form 10-Q, during the 12 months preceding the sale. This filing requirement does not include current reports on Form 8-K, and a past failure to file on time does not disqualify a sale if the company is current at the time of the sale.

Special conditions apply to companies that were formerly shell companies, which are entities with no or nominal operations. A former shell company must have ceased to be a shell, be subject to SEC reporting, and have filed all required reports for the 12 months after filing comprehensive information, similar to a Form 10 registration statement, that details its new business operations.

Compliance for Non-Reporting Companies

Companies that do not file reports with the SEC have an alternative method for satisfying the public information requirement. Under Rule 144(c)(2), these companies must make certain information publicly available, as specified in SEC Rule 15c2-11. For this information to meet the standard, it must be widely disseminated to the public, such as through distribution to shareholders, brokers, and market makers. Unlike the financials for reporting companies, these do not need to be audited.

The required information includes:

• The issuer’s exact name and state of incorporation
• The address of its main offices
• The exact title and class of the securities
• The number of shares outstanding
• The name of the transfer agent
• A description of the company’s business
• The names of its officers and directors
• The company’s most recent balance sheet and profit and loss statements for the two preceding fiscal years

Seller’s Verification of Compliance

The responsibility for ensuring the public information requirement is met falls on the seller. For reporting companies, this verification process is relatively straightforward. A seller has the right to rely on a statement in the company’s most recent quarterly (Form 10-Q) or annual (Form 10-K) report. These filings include a confirmation from the company that it has filed all required reports for the preceding 12 months. A seller can also rely on a separate written statement from the issuer or independently verify a company’s filing status on the SEC’s public EDGAR database.

Verifying compliance for non-reporting companies presents a greater challenge. Since there is no central repository like EDGAR for their disclosures, determining if the required information is “publicly available” can be difficult. Sellers must take reasonable steps to ensure the issuer has disseminated the necessary information to market makers and other interested persons. This might involve obtaining statements from the company or the broker-dealer handling the sale confirming the information is current and has been made available.