Legend Removal Opinions for SPAC and De-SPAC Shares
The Problem
If you hold equity issued in connection with a de-SPAC transaction, the expiration of your lockup period does not automatically clear the restrictive legend from your stocks.
This is primarily a result of how Rule 144 applies to former shell companies, an added layer of complexity that frequently catches investors and advisors off guard.
Why SPAC Shares Are Different
Every Special Purpose Acquisition Company (SPAC) transaction is, by definition, a shell company before its business combination (or merger) closes. As a result, the standard Rule 144 holding periods do not apply on the same timeline as they would for an ordinary operating company. Because every SPAC is a shell company prior to its de-SPAC transaction, Rule 144 is not available until a year after the de-SPAC transaction, and the company must have filed all required Exchange Act reports for the twelve months prior to the sale.
The specific applicable rule is Rule 144(i), sometimes referred to informally as the "evergreen" restriction. Rule 144(i) provides that securities issued by a current or former shell company, including a SPAC, cannot be sold in reliance on Rule 144 until three conditions are met: the issuer is no longer a shell company, the issuer has filed all Exchange Act reports required for the preceding twelve months (other than Form 8-K reports), and the issuer has filed current "Form 10 information" with the SEC reflecting its non-shell status, with at least one year having elapsed since that filing. This requirement can attach to a company's shares indefinitely, following them even years after the original transaction, and is sometimes referred to as a "scarlet letter" for that reason.
Following completion of a de-SPAC transaction, shareholders should consider the timing implications of this restriction. Because a legend generally cannot be removed until the company is current in its Exchange Act filings at the moment of the intended sale, and because that status cannot be confirmed in advance of the sale, shareholders are typically unable to secure legend removal in anticipation of a future transaction. On a security whose price is subject to material movement, this timing constraint can directly affect the proceeds a shareholder ultimately realizes.
Who This Affects
PIPE investors holding shares issued in connection with a de-SPAC transaction
Sponsors and founders holding shares subject to lockup and affiliate restrictions
Affiliates seeking to sell following expiration of a lockup, who remain subject to volume and manner-of-sale limitations under Rule 144
Non-affiliate shareholders who assume the one-year holding period alone resolves the restriction, without accounting for the company's shell-company history
Why Timing Matters
Because legend removal can generally only be confirmed at the time of sale, delay in coordinating diligence, transfer agent requirements, and counsel review can directly affect the price a shareholder realizes on a volatile security. Shareholders who wait until the day they intend to sell to begin this process often lose valuable time.
How We Can Help
We are happy to assess your documents and determine whether we can help remove your legend. Our review includes confirming the issuer's shell-company history, verifying current Exchange Act reporting status, and determining whether Rule 144, an effective registration statement, or another basis supports removal.
We do not stop at the opinion letter. We coordinate directly with the transfer agent and broker-dealer to process the legend removal request, and we work with your accountant to resolve any accounting matters that may affect the timing or basis of the opinion. Our aim is to move the entire process, not just the drafting, as efficiently as possible.
Frequently Asked Questions
My one-year holding period has already passed. Why is my legend still on?
For a company that was formerly a SPAC or other shell company, the standard Rule 144 holding period alone does not resolve the restriction. The company must also meet the separate Rule 144(i) requirement tied to its shell-company history and reporting status.
Does this apply to all de-SPAC companies?
It applies to companies that were shell companies, including SPACs, before their business combination (or merger). Business-combination-related shell companies are treated differently under the rule, but SPACs are specifically excluded from that treatment.
Can the legend be removed before I am ready to sell?
Generally, no. Because the company's filing status must be current at the time of the intended sale, removal is typically confirmed only in connection with an actual or imminent sale rather than in advance.
What documents do you need to assess my situation?
Typically, your share certificate or account statement showing the legend, information on when and how the shares were acquired, business combination related documents, and the issuer's recent SEC filing history. We can advise further once we review what you have.
How long does this process take?
Timing depends on the issuer's filing status and the responsiveness of the transfer agent, broker-dealer, and any accountants involved. We prioritize fast turnaround and will give you a realistic estimate once we have reviewed your documents.
About Kaelus Law
Kaelus Law, PLLC is a securities-first corporate law firm serving founders, issuers, institutional investors, and digital asset platforms. We provide direct access to lead counsel, without layers of staffing between you and the attorney handling your matter, and we are known for fast, defensible legal opinion turnaround. Contact us to discuss your legend removal matter.
Precision. Alignment. Resolution.
Contact us at 833-900-7890 or info@kaeluslaw.com for more information.
Attorney Advertising Disclaimer
This content is provided for general informational purposes only and does not constitute legal advice. Reading this material does not create an attorney-client relationship between you and Kaelus Law, PLLC. Securities law, including Rule 144 and its application to former shell companies, is fact-specific, and outcomes depend on the particular circumstances of each issuer and shareholder. You should not act or refrain from acting based on this content without seeking advice from qualified counsel regarding your specific situation. Prior results do not guarantee a similar outcome.
