The SEC (Securities and Exchange Commission) voted unanimously on November 15, 2007 to cut the required holding period in half from twelve to six months for selling restricted and control securities.
This exciting change will go into effect on February 15th, 2008. The change will bring a welcome relief to many smaller companies, because the shorter holding period is intended to lower the cost of capital and make it more accessible to those companies.
While this is exciting news for many and its effects will be far-reaching, the matter can be a bit confusing. Here is a brief overview.
What are Restricted or Control Securities?
A restricted security is paper certificate that proves ownership of a stock that was issued in an unregistered or private sale from a company or an affiliate of the company. Restricted securities are usually sold to investors or given as employee benefits.
Control securities are usually held by affiliates or shareholders of a company that have the power to direct the company. When the affiliate sells these control securities, they become restricted securities for the purchaser.
When a security is restricted, it will...
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