To be quite honest, most management teams do not know when or why they need a transfer agent, let alone what a transfer agent even is and what services they provide.
Transfer agents play a crucial role in the financial industry, particularly for companies that issue securities (i.e. equity or debt). And while transfer agents are typically associated with public companies or at least those who are about to IPO, private companies can also benefit from utilizing a transfer agent.
The SEC requires companies to use a registered transfer agent for any function “with respect to any qualifying security.” A "qualifying security" is any security registered under the 1934 Securities Exchange Act. Securities registration is required for a company that has “more than $10 million of total assets” and “its securities are ‘held of record’ by either 2,000 persons, or 500 persons who are not accredited investors.” A number of startups do not meet this threshold, therefore technically do not need a registered transfer agent. However, most companies still need the basic services of a transfer agent as outlined below.
Record Keeping: Transfer agents maintain the master shareholder register for a company. This includes keeping track of the ownership of stock and/or bonds, recording details of securities bought and sold, and updating investor information. Accurate record-keeping is essential for ensuring that ownership is correctly attributed and for managing communications with shareholders, especially for a public company.
Processing Transactions: Transfer agents handle the mechanics of buying and selling securities on behalf of the company. This includes processing transfers of stock or bond ownership, which might occur due to buying, selling, gifting, or inheriting shares.
Issuing Certificates: In cases where physical stock certificates are issued, the transfer agent prepares and provides these certificates to shareholders. They also handle lost, stolen, or destroyed certificates.
Dividend Distribution: Transfer agents manage the payment of dividends to shareholders. They calculate dividend payments, ensure the correct distribution amounts, and handle the logistics of payment—whether through direct deposit or by mailing checks.
Corporate Actions: Transfer agents coordinate activities related to corporate actions such as tenders, mergers, acquisitions, stock splits, and dividend payments. They ensure that these events are reflected accurately in the shareholders' records.
Communications and Proxy Voting: Transfer agents help manage communications between the company and its shareholders, including sending out annual reports, proxies, and other shareholder communications. They also facilitate the proxy voting process, collecting and tallying votes for corporate decisions.
Regulatory Compliance: Transfer agents help companies comply with regulations by ensuring that securities transactions are conducted according to legal and regulatory standards. They help maintain transparency in the ownership of equity and debit and assist in meeting reporting requirements set by regulatory bodies like the SEC.
By fulfilling these roles, transfer agents provide essential services that help companies operate smoothly and maintain good relationships with their investors. They act as a vital intermediary to ensure that transactions are executed properly and records are kept accurately, which is fundamental to the trust and legality of the financial system.
If you are looking to learn more about transfer agents, and how Efficiency can help, please reach out to info@useefficiency.com. We look forward to hearing from you!