I serve as director and president of a non-trading public company that was previously a "shell" for several years. The company now has nominal operations and a business plan. It recently did a small private placement. Can the shares issued in the private placement have the restrictive legend removed and, if so, after what holding period?
If you did a small private placement without a securities lawyer, that was your first risky move.
Securities issuance, especially for listed companies is so complex that the legal malpractice insurance rates are double for a securities lawyer than for a business lawyer..
You should get a total legal "tune-up" before you start "racing" your corporation in public markets. The penalties for securities fraud are potentially huge.
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
I strongly advise you to immediately speak with a securities attorney. This is one area of law that you do not want to run afoul of the applicable statutes.
Best of luck.
The foregoing discussion does not establish an attorney-client relationship, is qualified by the limited facts presented above, and should not be relied upon as legal advice. To obtain definitive legal advice upon which one can rely necessitates retaining an attorney who is qualified in this particular area of the law. Any comments are merely suggestions for you to think about in discussing your situation with your local attorney.
Business....invest in a lawyer, particularly one that knows securities law, and some tax law as well...and while you are at it get a decent accountant...
You are about to enter into a very complicated area and definitely need legal advice – unknown is if you are looking to create a public trading market from the shares sold and issued in the private placement, i. e. restricted stock. “Restricted securities” are previously-issued securities held by security holders that are not freely tradable because the sale transaction from the issuer to the security holders was a private transaction. After such a private transaction, the security holders can only resell the securities into the market by using an “effective” registration statement under the Securities Act or a valid exemption from the registration requirements of the Securities Act for the resale, such as Rule 144 under the Securities Act. If holders of restricted securities want to resell using an effective registration statement, the issuing company can provide a registration statement for them to make sales in a public offering by following the process discussed above for registering a public offering of securities. Alternatively, a holder of restricted securities can resell using an exemption. For example, Securities Act Rule 144 provides an exemption that permits the resale of restricted securities if a number of conditions are met, including holding the securities for six months or one year, depending on whether the issuer has been filing reports under the Exchange Act. Rule 144 may limit the amount of securities that can be sold at one time and may restrict the manner of sale, depending on whether the security holder is an affiliate. Shell status and status at the time of the issuance of the restricted securities must be addressed. Merely having a business plan and nominal operations and some cash may not take the company out of being a shell. Your relationship to the seller is a factor. An affiliate of a company is a person that, directly, or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the company. Note also that FINRA becomes involved and so-called ‘market makers’ may be required. Treatise have been written – thread carefully and pay attention to the other warnings contained in the other answers.
Competent counsel should be retained as each jurisdiction has different laws, each situation is fact specific and it is impossible to evaluate a legal problem without a comprehensive consultation and review and understanding of all the relevant facts and documents and applicable law. This response is merely informative in nature and it is not intended to constitute substantive legal opinions or advice. Nothing contained herein shall be deemed to create an attorney - client relationship.
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