Restricted Securities
Unregistered securities acquired in private transactions that cannot be freely resold without SEC registration or a valid exemption.
What is Restricted Securities?
Restricted securities are securities acquired directly from an issuer or an affiliate in a transaction not involving a public offering—such as a private placement under Regulation D, an employee stock compensation plan, or a Regulation A offering. Because they were not sold through a registered public offering, restricted securities cannot be freely resold to the public without SEC registration or a valid exemption. The primary exemption is SEC Rule 144, which permits the resale of restricted securities after a holding period (typically 6 months for SEC-reporting companies, 12 months for non-reporting companies), subject to volume limitations, manner-of-sale requirements, and the filing of a Form 144 notice for larger sales.
Example
A startup's early employee receives 100,000 shares as equity compensation under a Regulation D private placement. These shares are restricted securities—they cannot be sold on the open market until the company goes public (IPO) or the employee satisfies Rule 144's 12-month holding period and other conditions. The share certificate typically bears a restrictive legend notifying transfer agents of the restriction.
Source: SEC — Rule 144: Selling Restricted and Control Securities