A Complete Guide On How To Remove A Restricted Legend From Securities

Every day, people trade stocks and securities on the open market. For the most part, these transactions go smoothly, with both buyers and sellers getting what they want promptly. However, there are occasions when something goes wrong- a buyer purchases stock that is not authorized for sale, for example- and this can lead to complications. One such complication is the presence of a restricted legend on security. This guide will explain what a restricted legend is and how to remove it so that you can continue with your transaction without any further problems.

What is a Restricted Legend?

A restricted legend is a notice that is placed on a security that prohibits its sale in the open market. This legend is usually placed on securities that are not yet registered with the Securities and Exchange Commission (SEC), which is the governing body that oversees all stock trades in the United States. The purpose of the legend is to protect buyers from purchasing securities that may not be legal for them to own. This usually happens when a company is in the process of going public and has not yet registered its stock with the SEC. Also, if a security has been deemed “fraudulent” by the SEC, a restricted legend will be placed on it to prevent anyone from buying or selling it.

How Do I Remove a Restricted Legend?

There are a few ways to remove a restricted legend from security. The most common way is to submit a request to the SEC. This can be done by filling out a form on the SEC’s website and mailing it in, or by submitting it online.

First, you will need to file what is known as a Form D with the SEC. This form is used to notify the SEC that you are selling securities that are not registered with them. You will also need to provide information about the buyer of the securities, as well as any compensation that you or your broker will receive for the sale. Once Form D is filed, you will need to wait for it to be approved by the SEC. This can take up to a few weeks, but once it is approved, you will be able to remove the restricted legend from your securities and sell them without any further problems. It is important to note that if you are selling securities that are not registered with the SEC, it is important to file a Form D first.

The other way to remove a restricted legend is to have the company that issued the security file a Form 8-K with the SEC. This form is used to report significant events that have taken place with the company, and the company can use it to request that the restricted legend be removed. If the company files a Form 8-K and the SEC approves it, the restricted legend will be removed and you will be able to sell the securities without any problem.

Rule 144

Rule 144 is another way to remove a restricted legend, but it can only be used in certain circumstances. It is a set of regulations that allows for the public sale of unregistered securities. To take advantage of Rule 144, the company that issued the security must be reported to the SEC regularly, and the security must be fully paid for. If you want to try removing restrictive legend from securities using Rule 144 keep in mind that several other requirements must be met for Rule 144 to apply. Therefore, it is important to consult with a lawyer or financial advisor before trying to use this method so you can be sure that you comply.

Why Would I Need to Remove a Restricted Legend?

There are a few reasons why you might need to remove a restricted legend from security. The most common reason is that you inadvertently purchased securities that were not registered with the SEC. This can happen if you purchase stock through an online broker that is not registered with the SEC. While this is not necessarily illegal, it can be difficult to resell the stock without first removing the restricted legend. Another reason you might need to remove a restricted legend is if you are trying to sell your stock to an accredited investor. Accredited investors are individuals or organizations that meet certain criteria set forth by the SEC, and they are the only ones allowed to purchase unregistered securities. If you are trying to sell your stock to an accredited investor, you will need to remove the restricted legend first.

Tips for Successfully Removing a Restricted Legend

There are a few things that you can do to increase your chances of successfully removing a restricted legend from your securities. First, make sure that you are familiar with the process and have all of the necessary forms and documentation before you start. This will help to ensure that everything is in order and that you do not run into any problems along the way.

Second, be patient. The process can take some time, so it is important to be patient and wait for the SEC to approve your request. However, if everything is in order, you should not have any problems getting the restricted legend removed. Finally, if you are having trouble removing the restricted legend on your own, you can always consult with a broker or an attorney who specializes in securities law. They will be able to help you navigate the process and ensure that everything is done correctly.

What if I Can’t Remove the Restricted Legend?

If you are unable to remove the restricted legend from your securities, you may still be able to sell them if you find a buyer who is willing to purchase them without the legend. However, it is important to note that this can be difficult, and you may not be able to find a buyer who is willing to take on the risk. You should also keep in mind that if you do sell the securities without removing the restricted legend, you may be subject to legal action from the SEC.

In this case, the best thing to do is to consult with a securities lawyer who can help you determine the best course of action. Oftentimes, they will be able to negotiate with the SEC on your behalf and get the restricted legend removed. If not, they may still be able to help you find a buyer who is willing to purchase the securities without the legend.

Even though removing a restricted legend from securities can be a bit of a process, it is important to remember that it is possible to do. With a little bit of knowledge and patience, you should be able to successfully remove it and sell your securities without any problems. If you are having trouble removing the legend on your own, you can always consult with a broker or an attorney who specializes in securities law. They will be able to help you navigate the process and ensure that everything is done correctly. Just remember to be patient and keep all of the necessary documentation on hand, and you should be able to remove the restricted legend without any problem.