How do sellers who take public stock get liquidity?

How does Rule 144 work for a seller?

Shares issued to pay for a business are usually "restricted." They were not sold in a registered offering, so they cannot be resold freely at once. Rule 144 is the common route to resale.

• Holding period. Generally six months if the company reports to the SEC, or one year if it does not.
• Current information. Resale generally depends on the company being current in its public reporting.
• Affiliates face more limits. A seller who becomes an officer, director or large holder is treated as an affiliate. Affiliates face additional conditions on volume and manner of sale.

This is general securities law. The details depend on the seller's status and the company's filings, so confirm with securities counsel before any sale.

What else limits when a seller can sell?

• Lock-ups. The buyer often asks the seller to agree not to sell for a period, even after Rule 144 would allow it. This protects the share price from a large block hitting the market.
• Leak-out schedules. Instead of a hard lock-up, the seller agrees to sell no more than a set number of shares per day or month.
• Trading windows. A seller who stays on as an employee is usually bound by the company's insider trading policy, which closes trading around earnings releases.
• Float and volume. Small public companies can trade thinly. As of October 2026, the OTCQB requires only a 10% public float and 50 beneficial holders with 100 or more shares to list. A thin market can absorb only so many shares before the price falls.

Worked example: how long liquidity takes

All inputs here are hypothetical, to show the arithmetic.

1. A seller takes $1M of the price in stock at $1.00 a share: 1M shares.
2. The company reports to the SEC, so the Rule 144 holding period is generally six months.
3. The stock trades 50,000 shares a day. The seller agrees to sell no more than 10% of daily volume: 5,000 shares a day.
4. Time to sell 1M shares: 1,000,000 / 5,000 = 200 trading days, most of a calendar year.
5. Total: six months of holding plus most of a year of selling.
6. If the price falls 30% over that time, the seller's $1M becomes about $700,000. If it rises 30%, about $1.3M.

The seller is carrying market risk for well over a year. That is why sellers ask for more stock, more cash or protections in return.

How can a deal give the seller more certainty?

Most sellers of small businesses want cash. In the IBBA Market Pulse for Q2 2026, sellers received 83–92% of deal value in cash at close. Stock usually works as part of the price, not all of it.

Structures that reduce a seller's risk, each with a cost to the buyer:

• A cash-and-stock mix. Enough cash at close to meet the seller's needs, with stock as the upside.
• Registration rights. The company registers the seller's shares for resale, so the seller does not depend on Rule 144 timing. It costs legal and filing work.
• Price protection. A true-up issues extra shares or cash if the price falls by a set date. It protects the seller but can cause heavy dilution for the buyer if the stock drops.
• A collar. The number of shares is fixed within a price band, limiting swings on both sides.
• A company repurchase option. The company may, or must, buy back shares at a set price or formula. It uses cash the company might need.

Every protection given to a seller moves risk to existing shareholders. Price them as part of the deal.

If you are the seller

• Ask how many shares trade on an average day, and check it yourself.
• Ask whether the company is current in its SEC reporting.
• Read the share count history. Castellum, on NYSE American, paid more than 80% of a roughly $6.6M acquisition in restricted stock, and its share count rose from about 53M to about 94.6M between March 2024 and March 2026.
• Understand that stock-paid deals carry risk for buyers and sellers. A study of 6,000+ IPO registrations found stock-paid deals underperform cash deals by 20–30 percentage points over 3–5 years.
• Get your own securities and tax advice before signing.

If you are the buyer

Design the seller's path to cash before the negotiation, not during it. Know your trading volume, the Rule 144 timing and the dilution cost of any protection you offer. A seller who sees a realistic plan is more likely to accept stock, and less likely to ask for protections that hurt your other shareholders.

Where these numbers come from: Rule 144 holding periods are general securities law; confirm with counsel. OTCQB float and holder rules are from the OTCQB Rules, version 6.1. Cash at close is from the IBBA Market Pulse Q2 2026. Castellum figures are from this case review. Stock-paid deal performance is from the study reported on the CLS Blue Sky Blog. The worked example inputs are hypothetical.

Related questions

Can a seller sell immediately if the shares are registered?

Registered shares can generally be sold without waiting for a Rule 144 holding period. A lock-up or leak-out in the purchase agreement can still limit sales. Read both documents together.

What happens if the stock falls before the seller can sell?

Without price protection, the seller bears the loss. With a true-up, the company issues more shares or pays cash, which dilutes other holders. Negotiate this point explicitly.

Is private stock ever easier to sell than public stock?

Rarely. Private stock has no market, so a seller depends on a buyback, a sale of the company or a private buyer. Public stock at least has a market, even a thin one.

What comes next

Paying sellers in stock depends on timely, accurate public reporting: what finance team does a public holding company need?

Related articles

• How do you avoid dilution in a public roll-up?
• What finance team does a public holding company need?
• Why do sellers accept public stock more readily than private stock?
• How do you pay a seller with stock instead of cash?
• Should a holding company go public, and at what size?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.