A stock legend defines a restriction and its market impact. Finance is full of jargon. And one of those concepts that a new investor needs to know is a stock legend. A stock legend is not a person’s name but a type of marking on a stock certificate. This certificate is important. It restricts some types of share transfers. Stock legend is a component that is more than a reference. It is a valid rule. It places share transfer transactions and manages them through stock transfer agents.
What is a Stock Legend?
A stock legend refers to a statement printed on stock certificates. This document gives the guidelines for the shares’ transferring or sale condition. Stock legends exist to follow SEC regulations.
The SEC requires any security offering to undergo registration with it. This must happen before the security is available for public trading. During the registration process, there should be transparency. It protects investors. A stock agent only keeps the record of ownership. The SEC or state rule lays down these levels. They apply to unregistered securities or shareholders with prior agreements.
What Does a Stock Level Include?
A stock legend states the limits on transferring or selling the shares.
The legend refers to Restricted Securities. It will say that the certificate is for holders of unregistered shares. This shows that they haven’t completed registration under the Securities Act.
The legend will show the restrictions on the shares. It is possible by setting a holding period. There will be no grant of sale before the period ends. The company may need approval before transferring the share.
Stock transfer agents help with the distribution of dividend payments (cash or more shares). Distribute to shareholders based on their holdings. It also depends on the specific class of stock they own. Stock transfer agency services run incoming stock transfers and process them. This is when shares change hands when buying, selling, or inheritance.
In some cases, a specialized stock agency might help companies. They assist with the initial issuance of new shares.
Resale requirements may appear in the legend. They demand something to sell the shares. This may involve establishing the needed public company information.
For public trade companies, the seller may need to follow SEC rules. These rules are for transferring stock with a legend.
The restrictions come from an earlier agreement between the shareholder and the company. This kind of agreement is an employee share ownership plan. For buy-sell agreements, the legend would specify this agreement.
The legend may also include a legal notice. They should do their due diligence before the investment.
Restrictions
The following are some stock legend restrictions.
- There is a holding period before you can sell your shares. Rule 144 sets the holding period. It is six months for public companies. While a one-year holding period for non-public companies.
- Volume limits stop trading more than a set number of shares. This usually happens with affiliate shareholders. They are insiders like company officers. They may be unable to sell more than a certain percentage.
- For unregistered securities, a legend would limit re-sale. This is true only until enough public information is available about the company. This enables investors to get the necessary information before purchasing stock shares.
- To buy or sell the shares, the legend needs the company’s consent to do so. This keeps the company in control of the ownership structure. It can prevent a reverse takeover of the stock that could make the share price go down.
- The legend may also give the company or other shareholders the right of first refusal. They would have this right if you sell your shares. It allows them to buy the shares before they emerge on the public market.
Factors to Consider
Following the legend’s rules is important. Failure to follow may lead to legal issues.
Seeking Clarification? If you are not sure about your share’s limits, contact the company that issued them. Or you may consider talking to a financial advisor.
In some cases, you may request for a lift of legend restrictions. This happens when the securities have met the holding period. Or, when they have gotten legal clearance. The procedure for removing a legend will be different. So, consult the respective parties. To do this, the investor should contact the company’s shareholder relations division. The investor may ask for the details of the legend removal.
Unsure About a Stock Legend?
Do you own shares with a stock legend but are unsure about the restrictions it implies? Legacy Stock Transfer can be your partner in understanding and managing your investment.
We can guide you through the steps you need when it comes to stock legend. We will also ensure a smooth transfer process. Unlock your investment’s full potential. Call Legacy Stock Transfer today at 972-612-4120. Or email us here.