Gifts and Rule 144

The end of the year is usually the busiest time of the year for gift giving, both holiday gifts and charitable gifts, as folks are overcome with the holiday spirit, aided perhaps by the need for tax deductions. It is not uncommon for executives (who are typically affiliates for Rule 144 purposes) to gift company stock, instead of or in addition to cash. These gifts can have special implications for Rule 144 purposes.

The most recent issue of The Corporate Counsel highlighted some of the Rule 144 pitfalls that still apply to gifts. According to the article, when an affiliate gifts stock to a non-affiliate, the donee "stands in the shoes" of the donor until the stock has been held by both for a combined period of at least six months and up to 12 months. For up to six months, the non-affiliate donor must meet all the requirements of Rule 144 (except the holding period, provide that the stock is control stock only and not restricted securities). From six months to 12 months, there are no restrictions if the issuer is current in its Exchange Act reporting.

The time the donor has held the stock is tacked onto the donee's holding period. For example, where the donor had held the stock for two months prior to the gift and the company is current in its Exchange Act reporting, the donee only has to comply with Rule 144 (other than the holding period requirement) for four additional months.

Another trap exists for the donor, who must aggregate his/her sales of stock with those of the donee for purposes of comply with the Rule 144 volume limitation. This requirement applies for six months after the gift (12 months where the issuer is not a reporting company or is not current in its Exchange Act reporting).

Model Rule 144 Compliance Letters

In response to requests, Jesse Brill recently crafted six very helpful model Rule 144 gift compliance letters that lay out for donors and their donees the restrictions and procedures that still apply in six key gift giving scenarios (including the need to keep track of and report back to the donor any sales for one year following the gift, for example).

These letters were recently sent as a bonus to all 2012 subscribers to The Corporate Counsel. If you are not a subscriber to The Corporate Counsel (or have not yet renewed) you can gain immediate access online to the gift compliance letters by taking advantage of the no-risk trial. (Almost all of our member companies and law firms are long-term subscribers to The Corporate Counsel. If you know of someone who is not, you may wish to pass on to them the 50% off new subscriber offer, which they can take advantage of by writing 50% off on the order form.)

- Barbara