Securities sold under Rule 506(b), 506(c) and Section 4(a)(2) are restricted and cannot be freely resold; under Rule 144, a non-affiliate of a non-reporting company generally must hold for one year (six months if the issuer has been an SEC reporting company for at least 90 days). Regulation D imposes no periodic reporting beyond Form D amendments, but Regulation A Tier 2 and Regulation Crowdfunding issuers have ongoing SEC reports, and Reg D investors' information rights are contractual. Liquidity comes through resale exemptions such as Section 4(a)(7) or Rule 144 in private secondary transactions, or through an IPO, acquisition or merger.
In this lesson you will
- Explain what makes a security 'restricted' and which offerings produce restricted securities.
- Apply the Rule 144 holding periods for reporting and non-reporting issuers.
- Compare post-closing reporting duties across Regulation D, Regulation A and Regulation Crowdfunding.
- Describe the main secondary-sale and exit pathways.
Restricted securities
Restricted securities are not freely tradeable and typically carry a legend noting resale limits [1]. Securities acquired in Section 4(a)(2) and Rule 506(b) private placements, Rule 506(c) offerings, certain Rule 504 offerings, Rule 701 employee plans and Regulation S offshore transactions are examples [1]. By contrast, securities bought in Regulation A offerings are not restricted, and Regulation Crowdfunding securities are not restricted after 12 months [1].
Rule 144 holding periods
Rule 144 is a safe harbor for reselling restricted securities, with conditions on how long the securities are held, how they are sold and how much can be sold, depending on whether the issuer reports to the SEC and whether the seller is an affiliate [1]. If the issuer has been subject to Exchange Act reporting for at least 90 days, at least six months must pass between acquisition from the issuer or an affiliate and resale [2]. If the issuer is not a reporting company, the minimum is one year [2]. A non-affiliate who has not been an affiliate in the prior three months can resell restricted securities of a non-reporting issuer once one year has passed [2]. Affiliates face additional limits, including a cap on the amount sold in any three-month period [2].
Reporting after the raise
Regulation D does not impose periodic SEC reports, but Form D must be amended annually if the offering continues for more than 12 months or if certain information changes [6]. Regulation A Tier 1 issuers file an exit report on Form 1-Z, while Tier 2 issuers must file annual, semiannual and current reports [4]. A Regulation Crowdfunding issuer must file an annual report with the SEC and post it on its website no later than 120 days after its fiscal year end [5]. For Regulation D and SAFE investors, investor reporting is mostly a matter of contract; YC's SAFE FAQ, for example, recommends putting any agreed pro rata, MFN or information rights in a separate side letter rather than modifying the SAFE [7].
Even without a legal mandate, regular updates on financial results, cash runway and material events build the trust a company will need for the next round, and good records make the next round's diligence faster.
Secondary sales
Investors who sell private-company securities to other investors are using private secondary transactions or markets [1]. Section 4(a)(1) exempts resales by anyone other than an issuer, underwriter or dealer, and Rule 144 is a safe harbor under it [1]. Section 4(a)(7) is another resale pathway for restricted securities, with conditions on purchasers, sales methods and information given to buyers [1]. Resales under federal exemptions such as Section 4(a)(1) or Rule 144 may still need state registration or a state exemption unless the issuer is a reporting company, while Section 4(a)(7) resales are not subject to state registration, though states keep antifraud and notice-filing authority [1]. Broker-dealers handling these trades often rely on Section 4(a)(4), which covers a broker's part of an unsolicited customer order but is unavailable if the broker has reason to believe the seller's side is not exempt [1]. Section 4(a)(3), the dealer exemption, is not available for restricted or control securities [1]. Separately, securities bought in a Regulation Crowdfunding offering generally cannot be resold for one year [8]. Contracts can add their own limits; the YC SAFE, for instance, cannot be transferred without the company's consent except to an affiliate of the investor [7].
Exits
The most common exit routes are a public offering (an IPO, a SPAC merger or a direct listing), a sale or acquisition, a merger into a buyer, or liquidation of assets [3]. In a public offering, some investors' shares may be subject to a lockup period that delays public sales [3]. In a liquidation, proceeds pay obligations first and remaining value returns to shareholders in order of liquidation preference, which is why the terms set in lesson 4 matter at the end [3].
Key terms
- Restricted security
- A security acquired in an unregistered offering that cannot be resold freely, usually marked with a legend.
- Rule 144
- A safe harbor for reselling restricted and control securities, with holding-period, volume and manner-of-sale conditions.
- Affiliate
- A person that controls, is controlled by or is under common control with the issuer, such as a senior officer or major holder.
- Holding period
- The minimum time restricted securities must be held before a Rule 144 resale: six months for reporting issuers, one year for non-reporting issuers.
- Section 4(a)(7)
- A statutory resale exemption for restricted securities with conditions on buyers, sales methods and information.
- Information rights
- Contractual rights to receive financial statements or other company information.
- Lockup
- An agreement that delays when holders can sell shares after a public offering.
Check your understanding
Sources
- [1]U.S. Securities and Exchange Commission, Capital-Raising Building Blocks, “Private Secondary Markets,” September 4, 2024 (last reviewed April 24, 2026).
- [2]Electronic Code of Federal Regulations (eCFR), “17 CFR 230.144 -- Persons deemed not to be engaged in a distribution and therefore not underwriters.,” Accessed November 2026.
- [3]U.S. Securities and Exchange Commission, Capital-Raising Building Blocks, “Exit Strategies and Liquidity,” June 12, 2024 (last reviewed April 24, 2026).
- [4]U.S. Securities and Exchange Commission, Capital-Raising Building Blocks, “Regulation A,” November 6, 2024.
- [5]Electronic Code of Federal Regulations (eCFR), “17 CFR 227.202 -- Ongoing reporting requirements.,” Accessed November 2026.
- [6]U.S. Securities and Exchange Commission, Capital-Raising Building Blocks, “What is Form D?,” June 12, 2024.
- [7]Y Combinator, “The SAFE — the open standard for startup fundraising,” Accessed November 2026.
- [8]U.S. Securities and Exchange Commission, “Regulation Crowdfunding,” June 21, 2024 (last reviewed April 24, 2025).
Educational content only — not legal, tax, or investment advice, or an offer to sell or a solicitation of an offer to buy any security. Rules and data are described as of November 2026 and may change. Securities offered through Umergence LLC, Member FINRA/SIPC.