3.5 Resale of Securities

• Library: Corporations and Partnerships in Virginia (Virginia CLE) (2016 Ed.)

3.5 RESALE OF SECURITIES

3.501 In General. Unless exempted by a separate provision, all subsequent transactions in the newly issued securities must comply with the registration requirements. The registration of the initial issue is not suf-ficient. ²¹⁴ The principal exemption relied on by security holders who sell securities held by them is section 4(a)(1), ²¹⁵ which exempts all transactions by persons other than issuers, dealers, and underwriters. The terms "issuer" and "dealer" are defined in sections 2(a)(4) and 2(a)(12) of the Securities Act, re-spectively. ²¹⁶

3.502 Definition of Underwriter. Section 2(11) of the Securities Act ²¹⁷ defines "underwriter" as any person who purchases from an issuer and contemplates resale, who sells for an issuer in connection with a distribution, or who participates in any similar activity. "Issuer" as used in section 2(11) includes, in addition to the issuer itself, any person directly or indirectly controlling or controlled by the issuer or any person under direct or indirect common control with the issuer. The concept of control is one of the more difficult concepts in the securities acts, and there are numerous factors, in addition to stock ownership, that may indicate that an individual is in control of an issuer. Foremost among these factors is management or influence over those having the power to control the issuer. Depending on the facts, an officer or director of an issuer may or may not be a control person. ²¹⁸

3.503 Rule 144. The SEC has promulgated Rule 144, ²¹⁹ which sets forth certain conditions under which securities may be sold by (i) persons who acquire securities from an issuer (other than certain issuers with no or nominal operations or noncash assets) in a transaction not involving any

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public offering (potential "underwriters") and (ii) control persons or "affiliates" of an issuer (other than certain issuers with no or nominal operations or noncash assets), regardless of how the securities were acquired. Rule 144 also applies to the sale of "restricted securities" acquired by the seller in an exempt transaction under section 4(a)(2), ²²⁰ including transactions complying with Rule 504, 505, or 506 of Regulation D. ²²¹

A. Limitations on Sales. One purpose of Rule 144 is to limit the quantity and manner of sales so that normal trading markets are not disrupted. Provided that all other conditions are met, an affiliate may, during any three-month period, sell the greater of one percent...