Investor's wiki

Legend

Legend

What Is a Legend?

A legend is a statement on a stock certificate noticing limitations on the transfer of the stock. A stock legend is ordinarily put in place due to the requirements laid out by the Securities and Exchange Commission (SEC) for unregistered securities. A stock legend could possibly be legally required on the certificate itself, contingent upon state laws.

Limitations on the sale or transfer of share ownership are common among privately-held corporations. The legend conditions on the equity shares caution against the public resale of shares and request that the issuer replace these shares with without legend ones all things considered. A stock legend's conditions and limitations can assist a company with keeping their shares from being sold too soon, which could hurt the company.

Grasping Stock Legends

The most common legend on private stock certificates contains language advising the holder regarding the limitations on the sale or transfer of unregistered securities. There may likewise be further limitations on the sale of stock in private companies where shareholders have agreed to a shareholder purchase sell agreement. Frequently, these agreements are put in place to control who turns into a shareholder in the company. The stock legend frames the limitations for the sale of unregistered and restricted equity shares. Unregistered shares are just stock or equity shares that haven't been registered with the SEC, and thusly, have limitations placed on them for their issuance and resale, which are framed below.

Restricted Stock

Restricted stock are equity shares that companies issue to executives, management, and employees as well as pre-chosen investors. Restricted stock can be issued to keep the shares from being sold too soon, which could hurt the company. Albeit the restricted stock is non-transferrable initially, it very well may be sold sometime in the not too distant future following the finish of the vesting period. The vesting period, which may be three to five years, is when employees earn the right to legally take ownership of the stock and reserve the option to sell it. Commonly, restricted stock is found in stock benefit plans for employees of a company and the limitations are intended to energize the employee or executive to stay at the company.

Restricted stock is non-transferable before the vesting period has ended and must be traded in compliance with regulations implemented by the SEC. Investors might gain restricted stock through a private placement, which is the sale of stock to certain investors. A private placement is finished in lieu of a initial public offering (IPO) in what shares are sold publicly on the open market.

Rule 144

SEC Rule 144 frames the exemptions that permit one to sell unregistered securities. Rule 144 is a set of regulations that frame the conditions wherein the sale of unregistered or restricted stock shares can be sold. Normally, criteria must be met before a sale is permitted, remembering a base period for which the stock ought to be held, which can be as long as one year. Rule 144 limits the number of shares being sold by an affiliate to something like 1% of the company's outstanding shares. Likewise, Rule 144 orders disclosure requirements of a company's financial history. Financial statements, for instance, should be made accessible to the public before restricted and unregistered shares can be sold on the open market.

Having the Legend Removed

To have the legend on a stock certificate eliminated, investors ought to contact the company's shareholder relations division to figure out the subtleties of the removal interaction. Following that, the company will send a confirmation approving its transfer agent to eliminate the legend. The stock certificates should be shipped off the transfer agent, and the shares will be returned without the limitations in place. These shares can then be sold on the public market.

Features

  • A legend is a statement on a stock certificate taking note of limitations on the transfer or sale of a company's stock.
  • Limitations on the sale of stock through legends are in many cases put in place to control who turns into a shareholder in a company.
  • A stock legend is normally settled due to the SEC's requirements for unregistered or restricted securities.