What is unregistered stock
Unregistered shares are securities that are not registered in the Commission on securities and exchange Commission (sec). They are usually issued through private placements, regulation d offerings and employee stock benefit plans, as compensation for professional services or in exchange for financing a start-up. For example, in a private company may issue unregistered shares of its leaders and members of the Board of Directors as part of their compensation package.
Unregistered shares are also called restricted stock.
Breaking down the ‘unregistered stock
The unregistered shares have a lower level of investor protection and different risks compared to registered securities. As a result, the company can only sell unregistered shares to “qualified investors”. Qualified investors consist of high net worth ($1 million or more) and/or with high income ($200,000/year. or more for individuals, $300,000/year. or more for married couples) investors, which the SEC believes is common sense to make such investments. In the past, soliciting or advertising unregistered shares was prohibited but, in 2013, the SEC adopted rule 506(C) as part of the jumpstart our business startups (jobs) act, which allows certain securities that should be requested and advertised.
Sale of unregistered stock, as a rule, is considered a crime, but there are exceptions to this rule.
Sec rule 144 sets forth the conditions under which unregistered shares may be sold:
- They should be carried out in due time.
- There should be adequate public information about the historical safety performance of
- Selling should be less than one percent of the shares in circulation and less than one percent of the average trading volume in the previous four weeks.
- All normal trading conditions that apply to any transaction must be met.
- Sales over 500 shares or in the amount of more than $10,000 must be pre-registered with the sec. The exception to this condition occurs if the seller is not affiliated with the company that issued unregistered shares (and has not been associated with it at least three months) and owns shares of more than one year.
Unregistered Stock Swindler
Unwitting investors can be taken advantage at the expense of unregistered securities fraud. These scams usually advertise themselves as private offerings with virtually no risk and high return. These offers typically arrive unsolicited and sounds too good to be true. Investors can find out if security was watching him in the SEC Edgar online database. The shares traded by the average investor does not all was.
The SEC recommends that investors should be alert to some of these common signs of potential fraud when considering investing in unregistered deals.