Form 144 Explained: Notice of Proposed Sale

What is a Form 144?

A Form 144 is a notice of proposed sale. An affiliate of a company (typically a director, executive officer or large holder who can influence the company) files it when they intend to sell restricted or control securities under Rule 144 and the planned sales are above a size threshold.

The key word is proposed. A Form 144 says "I intend to sell up to this many shares through this broker around this date". It does not prove that any shares were sold. For directors and officers, the actual sale shows up afterwards on Form 4 within two business days. Reading the two together tells you what was planned and what happened.

Why Rule 144 exists for restricted stock

The Securities Act requires securities to be registered before they are sold to the public, unless an exemption applies. Two kinds of shares cannot be freely resold without an exemption:

• Restricted securities: shares bought directly from the company in an unregistered deal, such as a private placement (see Form D and Regulation D), or received as compensation without registration.
• Control securities: any shares held by an affiliate, even shares bought on the open market, because an affiliate is treated as close enough to the company that its sales resemble a company distribution.

Rule 144 is a safe harbor. If the seller meets its conditions, the sale is not treated as an unregistered distribution. Form 144 is the notice part of those conditions for affiliates.

When a Form 144 is required

An affiliate must file a Form 144 when the amount to be sold in reliance on Rule 144 during any three-month period exceeds either of these:

The notice is filed with the SEC concurrently with placing the sell order with a broker, or executing the sale directly with a market maker. Since April 13, 2023, Form 144 must be filed electronically on EDGAR, which is why these notices now appear in filing feeds in real time rather than as paper copies.

Non-affiliates who have satisfied the holding period generally do not file Form 144 at all.

Rule 144 holding period, volume and sale conditions

Holding period

Restricted securities must be held before resale: six months if the issuer has been an SEC reporting company for at least 90 days, and one year if it has not. The holding period does not apply to control securities bought in the open market, because those were never restricted.

Volume limit for affiliates

In any three-month period, an affiliate may sell no more than the greater of:

• 1% of the outstanding shares of the class, or
• the average weekly reported trading volume over the four calendar weeks before the Form 144 is filed (for exchange-listed stock).

Manner of sale and current information

For equity securities, affiliates must sell in ordinary brokers' transactions or directly to a market maker, without soliciting buyers. The company must also have current public information available, which in practice means it is up to date on its 10-K and 10-Q filings.

What a Form 144 contains

The form is short. The fields worth reading:

• the seller's name and relationship to the issuer (director, officer, 10% holder);
• the number of shares to be sold and their aggregate market value;
• the broker handling the sale;
• the approximate date of sale and the exchange;
• the number of shares outstanding;
• how and when the shares were acquired (open market, private placement, option exercise, gift), and how they were paid for;
• any sales by the same person in the past three months;
• for sales under a Rule 10b5-1 plan, the date the plan was adopted.

The acquisition section is often the most informative part. Shares acquired through a private placement two years earlier tell a different story from shares acquired through an option exercise the same day.

Form 144 and dilution research

In small caps, Form 144 notices sometimes come from holders who received shares in an earlier private financing and are affiliates by virtue of size. They can signal that restricted shares from a past deal are becoming tradeable supply. That supply was already counted in shares outstanding, so it is not new dilution, but it can change how much stock is in the hands of people able and willing to sell. Related concepts are the lockup that may have prevented earlier sales (lockup expirations explained), any leak-out agreement limiting how fast the shares can be sold, and the non-affiliate float, which excludes affiliate holdings.

Reading Form 144 next to Form 4

A large holder who is an affiliate but not a Section 16 insider (for example a holder below 10% who still has influence) may file Form 144 but no Form 4. In that case, the next confirmation of an actual sale may be a Schedule 13D or 13G amendment, or nothing until the next proxy statement.

How to check a company on Signal8

• The live SEC filings feed shows Form 144 notices as they are accepted by EDGAR.
• The insider trades page shows the Form 4 side: what directors and officers actually bought and sold. See Form 4 transaction codes and the insiders guide.
• A company's filing history is on its Filings tab, for example AAPL's filings.

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