Monetizing Restricted Stock

Monetizing Restricted Stock, especially if you are considered an “affiliate” of the company is very limited and requires legal expertise.

Rule 144 at (a)(1) defines an “affiliate” of an issuing company as a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer.”


Directors, officers and holders of ten percent or more of an issuing company’s voting securities (including securities which are issuable within the next sixty days) are deemed to be affiliates of the issuing company.  Affiliation due solely to stock ownership at the 10% or greater level is a rebuttable presumption, if facts against exercise of control are available.  A separate opinion, however, is generally required addressing lack of affiliation.

“Affiliates” of an issuing company always need a Rule 144 opinion before selling any stock of the issuing company, without regard to whether it is restricted stock or stock purchased pursuant to a registration statement or purchased in the open market.  They also need to file a Form 144 with the SEC and, if an exchange listed stock, with the exchange.  Arrangements to obtain an opinion must be made by the affiliate’s stockbroker, because a broker’s representation letter is also required.


Securities sold by an affiliate include securities sold by persons who a relative or spouse of the affiliate, or any relative of such spouse, any one of whom has the same home as the affiliate; any trust or estate in which the affiliate or any of the related persons specified in the preceding clause collectively own 10 percent or more of the total beneficial interest or of which any of them serve as trustee, executor or in any similar capacity; and any corporation or other organization (other than the issuer) in which the affiliate or any of the related persons specified in the first preceding clause are the beneficial owners collectively of 10 percent or more of any class of equity securities or 10 percent or more of the equity interest.

Rule 144 and Monetizing Restricted Stock

Because sales volume limitations of Rule 144 do not apply to non-affiliates, the definition of “person” in Rule 144(a)(2) does not have a practicable application to non-affiliates of issuing companies.

However, if you are a “non-affiliate”, your liquidation alternatives are substantially greater. For example, as a non-affiliate you can borrow against your securities, you can buy put options, and sell call options, form options spreads and collars and do other forms of presales as needed. You can hedge, collateralize, and substitute investment vehicles. 

Monetizing Restricted Stock

In summary,

If you are considered an “affiliate” you can only sell under the regulations and restrictions of Rule 144, exchange your stock for an Exchange Fund or similar vehicle. That’s it.

An Exchange Fund (also known as a “swap fund”) is a stock fund that allows an investor to exchange his or her large holding of a single stock for units in a portfolio. Exchange funds provide investors with an easy way to diversify their holdings while deferring any taxes from capital gains. 

There are also plans of offer holders of Rule 144 Restricted Stock that are affiliates and accredited investors a new form of Exchange Fund that will preserve principal, offer a distribution equal to the long-term capital gains tax, and offer other benefits as well. When and if completed, information regarding such Fund’s will be available on the Restricted Stock Information website. Certain requires will need to be met, and investors will only be allowed to invest after reviewing the Offering Memorandum.

As a non-affiliate, your alternatives are greater.