Rule 144(a)(3) discusses what criteria makes certain securities “restricted.” Restricted securities include stock and debt instruments
- acquired in unregistered, private sales from the Issuer; or
- from an Affiliate, or Insider, of the issuer.
Investors usually receive restricted stock by subscribing to a PPM in private placement offerings such as Regulation D or “Reg D” 504, 505, and 506 offerings, employee benefit plans, and as compensation for consulting or advisory services. Restricted securities are also often provided as consideration for providing capital to the Issuer.
When Shareholders of an OTC Bulletin Board or OTC Markets Issuer restrictive securities, the Transfer Agent has usually stamped the certificate with a “restrictive” or “restricted” legend. The legend puts the Shareholder on notice that the securities may not be resold until they are registered with the SEC or are exempt from the registration requirements (such as under Rule 144).