What Is Rule 144 and How Does It Affect Your Investors?

When someone invests in your startup, they usually get “restricted securities” — shares they can’t freely resell like public stock. Rule 144 is the SEC’s main safe harbor that tells investors (and your company) when those shares can be resold without registering the resale with the SEC. This matters because it affects investor expectations about liquidity, how secondaries can work, and what you can and can’t promise in a fundraising.

The core idea: Rule 144 is a safe harbor for resales

Rule 144 is not a promise of liquidity and it does not force a company to allow transfers. It’s a set of conditions that, if met, gives sellers a clearer path to resell either:

• restricted securities (typically shares originally sold in an unregistered offering, like a private placement), and/or
• control securities (shares held by an “affiliate” of the company, i.e., an insider or control person).

If the conditions aren’t met, a resale might still be possible, but it generally requires a separate legal analysis (and sometimes a different exemption). In practice, most startups and brokers lean on Rule 144 because it’s the most widely understood framework.

Key definitions (the words people trip over)

Restricted securities

Generally, these are securities acquired in an unregistered offering (for example, many private-company financings). They usually come with a “restricted” legend and transfer restrictions in the company’s charter, investor rights agreement, or stock plan documents.

Affiliate

An affiliate is typically a person who controls the issuer, is controlled by the issuer, or is under common control with the issuer. In startup land, this often includes founders, executives, directors, and sometimes large holders depending on facts and circumstances. Whether someone is an affiliate can be nuanced and is worth confirming with counsel.

The Rule 144 checklist (what actually matters)

Rule 144 has a few recurring requirements. Which ones apply depends on whether the seller is an affiliate and whether the company is an SEC-reporting company.

1) Holding period

Rule 144 includes a holding period for restricted securities. As a general rule:

• for companies that are subject to SEC reporting requirements, the holding period is 6 months
• for non-reporting companies, the holding period is 1 year

The holding period typically starts when the securities are acquired and fully paid for (and can get more complicated in certain situations like conversions, exchanges, or certain affiliate transactions). If your investors are planning a secondary sale, this is one of the first things counsel will check.

2) “Current public information”

Rule 144 generally requires that there be adequate current public information about the company. For SEC-reporting companies, that typically means being current on required filings. For non-reporting companies, the “public information” concept exists in Rule 144, but what counts as adequate and how it is made available can be fact-specific and should be reviewed with counsel—especially because most startups don’t routinely publish the type of information public markets expect.

3) Volume limits (mostly an affiliate issue)

Volume limits are aimed primarily at affiliates selling into the public markets. The common Rule 144 volume test is based on the greater of:

• 1% of the outstanding shares of the same class, or
• the average weekly trading volume over the preceding 4 weeks

In a typical private startup with no public float and no public trading volume, this isn’t the binding constraint; the binding constraint is usually “there isn’t a real market to sell into” plus company transfer restrictions. But volume limits become relevant once shares are publicly traded, and they can matter in more structured secondary sales depending on how they’re executed.

4) Manner of sale (again, mainly affiliates)

Rule 144 has “manner of sale” requirements that, in many cases, apply to affiliates when selling equity securities. This is one reason affiliate sales in public companies often go through brokers and follow specific execution rules.

5) Notice filing on Form 144

Rule 144 can require filing a Form 144 notice for certain sales by affiliates, subject to thresholds. The exact triggers and how they apply depend on the facts (including what is being sold, the seller’s status, and the size/timing of the sale), so this is another “don’t wing it” area where counsel and the executing broker typically get involved.

What Rule 144 means for startup investors (the practical reality)

Even if Rule 144 is satisfied, most startup investors still can’t just sell whenever they want, because:

• your company’s governing documents often require board consent or impose transfer restrictions
• there may be rights of first refusal (ROFR) or co-sale rights in favor of the company or major investors
• there may not be a natural buyer (no public market), and secondary buyers often want a company-enabled process
• the company may be reluctant to facilitate a secondary if it creates cap table sprawl, adverse selection, or signaling risk

So Rule 144 is best understood as “one piece of the puzzle,” not “the liquidity rule.” It’s a safe harbor that matters a lot once you have a public market (IPO) and can matter in certain structured private secondaries, but it doesn’t magically create a market for your stock.

A clearer way to think about it: common scenarios

Scenario A: Early employee wants to sell common stock in a private company

Even after any Rule 144 holding period is satisfied, the employee still usually needs to comply with the company’s transfer restrictions (like ROFR) and find a buyer. Many startups only allow this through an organized secondary program, if at all.

Scenario B: Founder (affiliate) wants to sell some shares after an IPO

Now Rule 144 becomes very real: affiliates often have to think about volume limits, manner-of-sale requirements, and potential Form 144 filings, in addition to any lock-up agreements and insider trading policies.

Scenario C: Investor asks, “Can I sell under Rule 144 on a secondary platform?”

Maybe, but it depends. Private secondary transactions can implicate securities-law, broker-dealer, transfer-agent, and company-consent issues. The right answer is usually: “There’s a legal framework for resales, but we need counsel to structure it correctly, and the company still controls transfers under its documents.”

Rule 144 requirements (high-level summary)

Condition	Affiliates	Non-affiliates
Holding period for restricted securities	Applies (generally 6 months for SEC-reporting companies / 1 year for non-reporting)	Applies (generally 6 months for SEC-reporting companies / 1 year for non-reporting)
Current public information	Generally required	Generally required at least during the applicable holding-period framework; specifics can be fact-dependent
Volume limits	Generally apply (public-company concepts like 1% / average weekly volume are commonly cited)	Generally do not apply once the seller is eligible to sell without those limitations; details depend on status and timing
Manner of sale	May apply to affiliate equity sales	Generally not applicable once the seller is eligible to sell without those limitations; details depend on status and timing
Form 144 notice	May be required for certain affiliate sales above thresholds	Generally not required for non-affiliates; facts matter

This table is intentionally high-level. Rule 144 compliance can get technical fast, especially around affiliate status, how the holding period is calculated, and how a resale is executed.

Frequently asked questions

Can my investors sell their shares?

Usually not easily while you’re private. Even if Rule 144 is available, your company’s transfer restrictions and the lack of a liquid market are usually the limiting factors. Investors should assume their main liquidity events are acquisition, IPO, or a company-supported secondary.

Is there a way around the holding period?

Rule 144’s holding period is a core part of the safe harbor for restricted securities. There are other potential resale pathways in securities law, but whether any apply depends heavily on the facts and requires counsel. As a founder, it’s safest to avoid implying investors will be able to resell quickly.

What about secondary markets?

Secondaries can happen in private companies, but they typically require company participation (or at least consent), clean documentation, and careful compliance by whoever is facilitating the transaction. “Rule 144 eligible” is not the same thing as “easy to sell.”

Bottom line

Rule 144 is the SEC’s main safe harbor for reselling restricted and control securities. It matters most when there’s an actual market to sell into (like after an IPO) and can matter in structured private secondaries. But for most startups, the practical constraint on investor liquidity isn’t Rule 144 — it’s your transfer restrictions and the simple fact that private-company shares don’t have a natural, always-on market.