Quick Answer
Restricted securities need six months before a safe-harbor resale when the issuer is subject to reporting requirements and has been for at least 90 days immediately before sale. Otherwise, they need one year. The period starts at acquisition from the issuer or an affiliate, and a purchase waits for full payment. This holding period conditions a safe-harbor resale.
After identifying a restricted security and its legend, determine whether the issuer has been subject to reporting requirements for at least 90 days immediately before sale. This history sets the holding period relevant to a resale and legend removal.
The period generally starts when the securities are acquired from the issuer or an affiliate. For a purchase, it cannot start before the buyer pays or gives the full purchase price or other consideration.
Which Holding Period Applies to Restricted Securities?
| Issuer reporting status and history immediately before sale | Holding period before resale under the safe harbor |
|---|---|
| Subject to reporting requirements for at least 90 days | Six months |
| Not subject to reporting requirements, or subject for fewer than 90 days | One year |
- Six-month category: The issuer must be subject to the reporting requirements of the Securities Exchange Act of 1934 and have been subject to them for at least 90 days immediately before sale.
- One-year category: The issuer is not subject to those reporting requirements or has been subject to them for fewer than 90 days immediately before sale.
- Starting point: The period generally starts when the securities are acquired from the issuer or an affiliate. A purchase does not start the period until the buyer pays or gives the full purchase price or other consideration.
- Legend removal: Satisfying the holding period makes a safe-harbor resale available. It does not by itself remove a restrictive legend.
Issuer status and 90-day reporting history → acquisition date and full payment → applicable holding period → safe-harbor resale available when the other conditions are met
Exam Tip: Gotchas
- A reporting issuer must also satisfy the 90-day history condition. Six months applies when the issuer is, and for at least 90 days immediately before sale has been, subject to Exchange Act reporting.
What Should You Check on Exam Day?
- Determine whether the issuer has at least 90 days of reporting history immediately before sale.
- Use six months only when the issuer also has the required 90-day reporting history.
- Use one year when the issuer is not subject to reporting requirements or has fewer than 90 days of reporting history.
- Identify when the securities were acquired from the issuer or an affiliate. For a purchase, confirm full payment before starting the period.
- Do not treat expiration of the holding period as automatic legend removal. A resale relying on the safe harbor must satisfy its other applicable conditions.