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Affiliate vs. Non-Affiliate Under Rule 144
Affiliate status materially affects how restricted and control securities may be resold.
An affiliate directly or indirectly controls, is controlled by, or is under common control with the issuer. Officers, directors, controlling shareholders, and others able to influence management may be affiliates. Capital Markets Law Group analyzes status and prepares the supporting opinions, filings, and transfer-agent communications.
How Do the Requirements Compare?
Both categories deal with the same rule, but the conditions they face differ in scope. The table summarizes the differences.
| Requirement | Affiliate | Qualifying Non-Affiliate |
|---|---|---|
| Holding period for restricted securities | Applies | Applies |
| Current public information | Generally applies | May apply during part of the holding period |
| Volume limits | Apply | Generally do not apply after applicable conditions are met |
| Manner of sale | May apply | Generally does not apply |
| Form 144 | May be required | Generally not required |
| Control securities | Subject to conditions even if unrestricted | Not applicable without control status |
| Former-affiliate period | Affiliate treatment may continue temporarily | Reduced conditions may apply after the required period |
The short version: affiliates face the full set of conditions indefinitely, while a qualifying non-affiliate's obligations largely end once the holding period is satisfied. A person who recently left an affiliate role remains subject to the affiliate conditions for at least three months after ending that status, and longer if control or influence continues in fact.
Who May Be an Affiliate?
Potential affiliates include:
- Executive officers
- Directors
- Founders
- Controlling shareholders
- Persons with substantial voting power
- Persons controlling management decisions
- Entities controlled by an affiliate
- Persons acting together as a control group
No single ownership percentage resolves the question in every case.
When Does a Former Affiliate Become a Non-Affiliate?
Rule 144 distinguishes a person who is not, and has not been for at least three months, an affiliate. The conclusion must be supported by the facts.
Resignation does not necessarily end affiliate status if the person continues to exercise control or influence.
What Volume Limits Apply to Affiliate Sales?
An affiliate's sales of any class of the issuer's securities are limited to the greater of one percent of that class outstanding or the average weekly trading volume of the class during the four calendar weeks preceding the Form 144 notice. Affiliates of issuers not subject to Exchange Act reporting face a different, lower calculation based on average weekly trading volume. Aggregate sales of the same class within any three-month period are measured together, which can exhaust the limit faster than separate sales suggest.
Why Does Status Matter to a Transfer Agent?
The transfer agent may request:
- Affiliate questionnaires
- Officer and director history
- Ownership information
- Board and voting relationships
- Control representations
- Form 144 information
- Broker representations
- Issuer confirmation
How Does Capital Markets Law Group Help?
Our services may include:
- Analyzing affiliate status
- Preparing Rule 144 opinions
- Reviewing volume-limit calculations
- Preparing or reviewing Form 144 filings
- Advising on former-affiliate transitions
- Coordinating with brokers and transfer agents
- Advising on resale alternatives
Keep Reading: Rule 144 Legal Opinions and Restricted Stock, Why Will the Transfer Agent Not Remove My Restrictive Legend?, Public Company SEC Reporting and Flat-Fee Compliance Counsel, SEC Reporting Delinquencies.
Frequently Asked Questions
Is Every 10% Shareholder an Affiliate?
Not automatically. Ownership is important, but control depends on all circumstances.
Is Every Officer an Affiliate?
Executive officers are commonly treated as affiliates, although duties and influence matter.
Can an Affiliate Sell Under Rule 144?
Potentially, if all applicable requirements are satisfied.
Does Rule 144 Apply to Unrestricted Shares Held by an Affiliate?
Control securities may be subject to Rule 144 even if not acquired in a restricted transaction.
Can a Former Director Immediately Be Treated as a Non-Affiliate?
Not ordinarily. The applicable former-affiliate period and ongoing relationship must be evaluated.
How Is the Four-Week Trading Volume Measured?
The limit uses the average weekly reported trading volume of the class during the four calendar weeks before the Form 144 notice is filed, and applies the greater of that figure or one percent of the class outstanding. Because the measurement window moves, an affiliate's available volume should be recalculated for each sale program rather than reused from a prior filing.
Does the Volume Limit Apply to Family Trusts?
Sales for the account of a trust or estate may be aggregated with the affiliate's own sales, and distributions to non-affiliate beneficiaries can raise tacking questions. The structure of the holding entity matters, and the analysis should be documented before any sale is placed.
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Talk to Capital Markets Law Group About Affiliate Status
Capital Markets Law Group assists shareholders, officers, directors, issuers, brokers, and transfer agents with affiliate analysis, Rule 144 opinions, Form 144, and legend removal. Contact the firm before a sale is placed or a legend-removal request is submitted.