Gifts of Securities Under Rule 144

by LearnAboutLaw Staff July, 2007

Rule 144, promulgated under the Securities Act of 1933, is a safe harbor provision that allows holders of restricted securities to make sales of stock when certain conditions are met. For an overview of Rule 144, read the article here .
A question that often arises in a Rule 144 analysis is how Rule 144 treats gifts of securities. For example, if a shareholder gives a gift of securities, will the receiver of the securities (called a “donee” in 144 parlance) enjoy a the full holding period of the grantor (called a “donor” in 144 parlance)? Obviously, a donee of restricted securities will often want to “tack” his or her holding period to the holding period of the donor–thereby enjoying the right to sell the securities earlier than he or she otherwise would.
Luckily for donees, Rule 144 treats gifts generously.

Rule 144’s subsection (d) dictates that “a minimum of one year” must pass from the time the securities are acquired from the issuer or from an affiliate of the issuer (affiliate definition: here ) and the date of sale. And the subsection continues by noting that sales are allowable by both the original acquiror of the securities or a subsequent holder–as long as the minimum one year hold is met. As such, a donee by gift enjoys the full tacking period of the original holder of the securities.

 

 

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When the Donor Is an Affiliate

Even when the Donor is an affiliate of the issuer, Rule 144 carves out a generous exception that allows donees to enjoy the affiliate’s full holding period. Subsection (d)(3) states that “Securities acquired from an affiliate of the issuer by gift shall be deemed to have been acquired by the donee when they were acquired by the donor.” Clearly, gifts of securities, even from normally hyper-restricted affiliates can be made to donees who will thereafter enjoy the full benefit of the donor’s holding period.

 

 

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