What is a Seller’s Letter and How It Can Be Used?

A Seller’s Letter is a standard form used to draft a representation letter for the delivery of restricted securities in reliance on Rule 144 under the Securities Act. Counsel delivering an opinion as part of a Rule 144 sale typically relies on, among other things, a representation letter from the seller to establish certain facts underlying the opinion, and the seller’s broker and the issuer’s transfer agent may require a similar representation letter. 

A Seller’s Letter typically includes representations regarding the following:

  • The Seller is not an affiliate of the Issuer
  • The Seller has held the securities for the required period of time
  • The Seller is not subject to any contractual restrictions on the sale of the securities
  • The Seller is not aware of any material information that has not been disclosed publicly about the Issuer

The letter also typically includes a representation that the sale of the securities will comply with all applicable laws.

A Seller’s Letter is typically used in connection with the sale of restricted securities pursuant to Rule 144 under the Securities Act. Rule 144 generally provides that a person who is not an affiliate of the issuer may sell restricted securities if such person has held the securities for at least six months and certain other conditions are met, including the delivery of a Seller’s Letter. 

A Seller’s Letter may also be used in connection with the sale of securities in a private transaction. If the Seller is not an affiliate of the Issuer, the Seller may be able to sell the securities without registration under Rule 144. In order to rely on this exemption, the Seller will need to deliver a letter to the buyer. 

A Seller’s Letter may also be used in connection with the sale of securities pursuant to Regulation D under the Securities Act. Rule 506 of Regulation D generally provides that a person may sell securities in a private transaction if such person is not an affiliate of the Issuer and certain other conditions are met, including the delivery of a Seller’s Letter. 

A Seller’s Letter should be reviewed and approved by counsel prior to delivery. They are typically prepared by the Seller’s broker, but may also be prepared by the Seller or the Issuer’s counsel.

If you are selling restricted securities, you will likely need to obtain a one in order to remove the legend from the certificate and facilitate the sale. Only a transfer agent can remove the restrictive legend from a restricted stock and he or she will only do so if they receive a letter from the issuer’s counsel. Talk to your broker and/or legal counsel and the Issuer’s counsel to see if a Seller’s Letter is necessary.

Removing a restricted stock legend is a very complicated process. The SEC recommends consulting with a legal professional when starting the process. 

We have provided an example on our website. Click here to download a copy.