Reminder: You can always ask questions by messaging us! We'll clarify technical dilution concepts for you!
Before a company can sell shares to the public, those shares must first be registered with the SEC. This includes both new shares in the primary market issued through private placements and restricted shares that were previously owned by insiders. This requirement exists because the registration process requires a company to file a prospectus or registration statement, which contains detailed information about the company such as financials, shares being offered, risk factors, and required disclosures. This ensures that the public is updated on the company’s current financial information and makes an informed decision before purchasing the shares being offered.
Restricted insider shares may be sold without registration through an exemption called Rule 144, but it contains volume restrictions and usually not a viable method of disposing large quantity shares for affiliates.
If the holder is not an affiliate of the company (director, officer, or large shareholder) then he/she can sell restricted securities through rule 144 without volume restrictions if:
1) the securities have been held for more than 6 months and
2) the company is current in its financial reporting