Unregistered Shares

DEFINITION of 'Unregistered Shares'

Securities that are not registered with the Securities and Exchange Commission. Unregistered shares, also called restricted stock, are usually issued through private placements, Regulation D offerings and employee stock benefit plans, or as compensation for professional services or in exchange for funding a start-up company. For example, a privately held company might issue unregistered shares to its executives and board members as part of their compensation package.

BREAKING DOWN 'Unregistered Shares'

Unregistered shares have fewer investor protections and different risks compared to registered securities.  As a result, companies can only sell unregistered shares to “qualified investors.” Qualified investors are comprised of high net worth ($1 million or more) and/or high-income ($200,000/yr. or more for individuals, $300,000/yr. or more for married couples) investors that the SEC considers savvy enough to make such investments. In the past, soliciting or advertising unregistered shares was prohibited, but in 2013, the SEC adopted Rule 506(c), allowing certain unregistered securities to be solicited and advertised.

The sale of unregistered shares is typically considered a felony, but there are exceptions to this rule. SEC Rule 144 lays out the conditions under which unregistered shares may be sold. They must be held for a prescribed period, there must be adequate public information about the security’s historical performance, the sale must be of less than 1% of shares outstanding and less than 1% of the previous four weeks’ average trading volume, all normal trading conditions that apply to any trade must be met and sales of more than 500 shares or more than $10,000 worth must be preregistered with the SEC. An exception to this last condition occurs if the seller is not associated with the company that issued the unregistered shares (and has not been associated with it for at least three months) and has owned the shares for more than one year.

Unwitting investors can be taken advantage of through unregistered securities scams. These scams usually advertise themselves as private offerings with little or no risk and high returns. These offerings typically arrive unsolicited and sound too good to be true. Investors can find out if a particular security is registered by looking it up in the SEC’s EDGAR database online. Stocks traded by the average investor are all registered.

RELATED TERMS
  1. Legend

    A statement on a stock certificate noting restrictions on the ...
  2. Offering Memorandum

    A legal document stating the objectives, risks and terms of investment ...
  3. Intrastate Offering

    In the United States, a securities offering that can only be ...
  4. SEC Form S-8

    A filing with the Securities and Exchange Commission (SEC) that ...
  5. SEC Schedule 13E-3

    A schedule that must be filed with the Securities and Exchange ...
  6. Private Placement

    The sale of securities to a relatively small number of select ...
Related Articles
  1. Investing Basics

    Who is an Accredited Investor?

    Essentially, accredited investors are knowledgeable and experienced enough to handle the risk that comes with investing in unregistered securities.
  2. Investing Basics

    Understanding Private Placement

    Private placement refers to offering and selling shares in a company to a small group of sophisticated buyers.
  3. Investing Basics

    How To Decode A Company’s Earnings Reports

    Earnings reports tell investors how a publicly-traded company is performing, but aren’t always easy to decipher.
  4. Investing

    What's the SEC?

    The Securities and Exchange Commission (SEC) is an independent agency of the United States government. The mission of the SEC is to enforce securities laws passed by congress. These laws aim ...
  5. Professionals

    How To Get A Job At The SEC

    Want to make a good living taking on those renegade trading rascals on Wall Street? Here are some tips to help you get in the door at the SEC.
  6. Investing Basics

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  7. Active Trading

    Using Public SEC Filings To Analyze Companies

    Reports from the Securities and Exchange Commission provide investors with an edge in determining the investment value of companies. Learn what to look for in these financial reports.
  8. Mutual Funds & ETFs

    The SEC Is Watching: New Reporting Standards

    The SEC recently proposed new rules for large traders. Does this tracking protect investors and the market, or is the SEC getting too involved?
  9. Active Trading

    Don't Let Stock Prices Fool You

    Find out why a stock with a six-figure share price can still be a good value.
  10. Investing Basics

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
RELATED FAQS
  1. What is an unregistered mutual fund?

    An unregistered mutual fund is a general name given to investment companies that are not formally registered with the Securities ... Read Answer >>
  2. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ... Read Answer >>
  3. Under the Uniform Securities Act, which of the following actions is permitted for ...

    The correct answer is d). A sales representative may not make trades in a state unless both the sales representative and ... Read Answer >>
  4. What is an unregistered security scam?

    Each year, millions of Americans lose money to con artists who convince them to invest in companies through "private offerings" ... Read Answer >>
  5. Under the Uniform Securities Act, all of the following are prohibited EXCEPT ... ...

    The correct answer is c. Refusing to follow a client’s instructions and making false statements (or omitting true ones!) ... Read Answer >>
  6. A sales representative is permitted to take all of the following actions EXCEPT:

    A sales representative is permitted to take all of the following actions EXCEPT: a. Offer investment advice to clientsb. ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center