Restricted Stock vs Control Stock

Rule 5 of 14 in this unit2.1.1

2.1.1 Equity Securities

SIE outline 2.1.1

Restricted Stock vs Control Stock

RESTRICTED is about acquisition: Rule 144(a)(3) securities acquired from the issuer or an affiliate in a transaction not involving a public offering. CONTROL is about the holder: Rule 144(a)(1) defines an affiliate as "a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer." NOT "control stock means shares bought privately." A director's shares bought on the open exchange this morning are control stock, because the restriction attaches to the seller, not to how the shares were acquired.

The method for this kind of question

1h45m ÷ 80 items = 78.75 seconds per item. A voting or Rule 144 item should cost about 45.
Three facts decide which formula you are in: does the charter provide cumulative voting? does the issuer report? is the seller an affiliate?
Cumulative voting = shares × seats, and it favours the MINORITY holder. Statutory = your share count per seat.
Rule 144(e) takes the GREATEST of 1% outstanding and the 4-week average weekly volume: never automatically the 1%.
Rule 144(d): 6 months if the issuer reports, 1 year if it does not. The clock runs from acquisition.
Liquidation: sort by claim type, not by how safe the name sounds. A subordinated debenture still outranks preferred stock.
Next: SIE Practice Quiz #5: Equity Securities, every answer explained.

Now answer

1 question on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.

Question 1Exam level

A board of directors wants to issue more shares than its charter currently authorizes. What must happen first?

A. The charter itself must be amended to raise the authorized-share ceiling B. The SEC must approve the increase C. The corporation must first buy back an equal number of treasury shares D. Nothing; the board may issue shares up to any number it chooses

How sure are you?

Sure Fairly sure Guessing

Correct: A. Directors may issue shares only up to the amount authorized in the certificate of incorporation; raising that ceiling means changing the charter.

B. The SEC approves nothing; it reviews registration statements, not a corporation's own share-authorization ceiling.

C. Buying back treasury shares changes the treasury count, not the authorized ceiling.

D. The board's own authority to issue shares is capped at the charter's authorized amount.

Unit: SIE outline 2.1.1

Next ruleSix Months, or One Year Under Rule 144

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