What Is a Legend?

A legend is a statement on a stock certificate noting restrictions on the transfer of the stock. This often occurs due to Securities and Exchange Commission (SEC) requirements for unregistered securities. A legend may or may not be legally required on the certificate itself, depending on state laws.

Restrictions on the sale or transfer of share ownership are common among privately-held corporations. The legend warns against the public resale of shares and asks the issuer to replace these shares with legend-free ones instead.

Legends Explained

The most common legend on private stock certificates contains language informing the holder of the restrictions on the sale or transfer of unregistered securities. There may also be further restrictions on the sale of stock in private companies where shareholders have agreed to a shareholder buy-sell agreement. Often, these agreements are put in place to control who becomes a shareholder in the company.

SEC Rule 144 outlines the exemptions that allow one to sell unregistered securities. Restricted stock is non-transferable and must be traded in compliance with regulations enforced by the SEC. Investors may acquire restricted stock through private placements or other stock benefit plans for employees of a company.

Having the Legend Removed

In order to have the legend on a certificate removed, you'll want to contact the company's shareholder relations department to find out the details of the request process. Following that, the company will send you a confirmation authorizing its transfer agent to remove the legend. You'll need to send in any stock certificates to the transfer agent and can expect to receive back shares without the restrictions in place. These shares can then be sold on the market.