What You Can Do When Securities Are Subject To A Commissioner’s Transfer Restriction

As a condition to qualification, the Commissioner of Corporations may impose a restriction on the subsequent transfer of the securities being qualified. Cal. Corp. Code § 25141. Rule 260.141.10 describes the general circumstances under which the Commissioner will impose a transfer restriction. The imposition of a transfer restriction was a far more common occurrence in the “old days” when there were fewer exemptions from qualification and more issuers needed to qualify the offer and sale of their securities. Nonetheless, a long-ago imposed condition can become a current problem when a security holder decides to dispose of the securities.

Rule 260.141.12 establishes the conditions under which the Commissioner will order the removal of transfer restrictions. Before doing so, the Commissioner must find that the circumstances no longer require the restriction and that subsequent transfers are not likely to be unfair, unjust or inequitable.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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