Restricted stock refers to shares that are not fully transferable or tradable until certain conditions are met, while resale restrictions are limitations placed on the sale or transfer of securities to protect investors and maintain market integrity.
Which of the following best describes restricted stock?
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Select an option above to see an explanation here.
A) Unrestricted stock is fully transferable and tradable without any restrictions. B) Restricted stock is fully transferable and tradable once certain conditions are met. C) Private placement shares are typically sold to accredited investors. D) Insider trading regulations apply to all securities, not just restricted stock.
What is the primary purpose of resale restrictions?
A) Insider trading is a separate issue from resale restrictions. B) Resale restrictions are in place to protect investors and maintain market integrity. C) Accredited investor requirements apply to private placements, not resale restrictions. D) Limiting the supply of shares is not the primary purpose of resale restrictions.
In the past, there have been instances where companies have issued restricted stock to employees as part of their compensation packages. These shares were subject to resale restrictions, and employees had to wait for a certain holding period to elapse before selling their shares on the open market. This practice was intended to align the interests of employees with those of the company and its shareholders.
Which regulation sets forth the conditions under which restricted stock can be sold publicly?
A) Rule 144 is the regulation that sets forth the conditions under which restricted stock can be sold publicly. B) Blue Sky laws are state regulations governing the sale of securities. C) Regulation D governs private placements. D) The Securities Act of 1933 requires companies to register their securities with the SEC before selling them publicly.
A startup company may issue restricted stock to its founders and early employees to incentivize them to stay with the company and help it grow. These shares may be subject to a vesting schedule, which means that the employees will only gain full ownership of the shares after a certain period or upon achieving specific milestones.
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Example Series 65 Example Practice Question
Restricted stock, not free to trade, resale restrictions must be obeyed. Hold it tight, wait for the day, when conditions met, you can sell away.
- Resale restrictions: Limitations placed on the sale of certain securities, often due to regulatory requirements or company-imposed restrictions. - Holding period restriction: A required length of time that an investor must hold a security before they can sell it. - Rule 144: A regulation under the Securities Act of 1933 that sets forth conditions under which restricted, unregistered, and control securities can be sold.
- Resale restrictions: An employee receives company stock as part of their compensation package but is not allowed to sell the stock for a certain period. - Holding period restriction: An investor purchases shares in a private company and is required to hold the shares for at least one year before selling them. - Rule 144: An executive at a public company wants to sell a large number of shares they own, but they must follow the requirements of Rule 144, such as filing a notice with the SEC and adhering to volume limitations.