Changes In The World Of Transfer Agents – Good News For Issuers

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) introduced many changes in the world of transfer agents, including new transparency requirements for transfer agents. This article discusses what these changes mean for issuers and provides some insights into how issuers can take advantage.

Change is always difficult to swallow, but these are exciting times that have set out a vast array of opportunities to grow your company when it comes to raising capital. Issuers must ensure they have a business model that will generate revenues over time, as well as a brand name that will enable it to compete with other firms in this sector.

The Dodd-Frank Act introduced some interesting changes regarding the oversight of transfer agents, hoping to encourage transparency in the capital raising process. Most issuers will not be affected by these changes, as their offering documents have been reviewed and approved by the SEC for years. Some amendments were, however, brought forth that may affect the way an issuer intends on conducting its business moving forward.

In this article I discuss what these changes mean for issuers who are selling securities and provide some insights into how they can take advantage of them. Specifically, I will discuss:

The role of transfer agents in the capital raising process. The Dodd-Frank Act's new transparency requirements for transfer agents. What these changes mean for issuers that are selling securities.

The Role of Transfer Agents

Transfer agents play an important role in the capital raising process and serve as a custodian of all the documentation related to a company's securities issuance. The fundamental function of a transfer agent is to maintain records related to stock transfers and dividends, while registering corporate actions such as mergers and splits. They also help handle shareholder services such as address changes and lost share certificates.

The role of a transfer agent is extended to issuing and selling securities via the whole registration process as well. They provide issuers with information on what type of securities are being offered, how much money has been raised, how many securities are sold and to whom. They are also regularly in touch with investors inquiring about their financials, why they were given the opportunity to buy stocks in a company before they were available to the general public and what rights they have as owners of the company.

The Dodd-Frank Act's New Transparency Requirements for Transfer Agents

Many capital raising entities will now have to report publicly on their use of registered transfer agents and other fees associated with the sale of securities. Public reporting means that there will be information available on an issuer's website, as well as in filings made to the SEC. These reports will provide insight into who is handling securities transfers as well as an estimation of how much it costs to do so. The gathering and reporting of this information is intended to shed some light into employment practices and pricing. Ultimately, it is designed to allow the transfer agent industry to operate more openly and efficiently.

Issuers that sell securities must now report on their use of transfer agents, as well as each transfer agent's fee structure. This includes both when and where it was used, who participated in the sale and how much it cost. The first two paragraphs of the instructions to form-document preparers mandate that issuers inform investors whenever a registered transfer agent is involved in the sale of securities. Issuers will also be required to provide a statement regarding their fees and expenses related to the use of registered transfer agents. The payer must detail all transfers, including names, addresses and whether they were registered or not.

What these Changes Mean for Issuers

Issuers should be prepared to provide information about their use of transfer agents in the sale of securities. This should cover both the primary and secondary market, as well as the fees they were charged. If information is missing or needs to be provided it should be done so as soon as possible, so that all relevant documents can come together in one package. Any fees associated with transfer agents must also be clearly stated and easily disclosed to potential investors. This will allow investors to see how much money is actually going into the company's operations and not into a third party's pocket.

This transparency will also allow for better comparison between companies when it comes to using a registered transfer agent. It will also enable the industry to move forward in a way that will be more productive for all parties involved. It is now easier for issuers to get a grasp on how transfer agents are performing, driving them to seek out those methods that will provide them with the best value and service.

Regulation A+ provides new opportunities for companies seeking to raise capital by selling their securities. In addition to these new regulations, there are also changes in the Securities Exchange Act of 1934 that were made with the intention of bringing about better transparency, especially when it comes to the secondary market. These changes affect not only the issuer and transfer agent, but investors as well. That is why it is important for issuers to have clear explanations of the transfer agent's fees and what they expect from them, so that all parties are on the same page.

Additionally, issuers should be up-to-date on their Forms 10-K and 10-Q filings. This will enable them to see the effect these changes have had on the capital raising process. It will also give them a better understanding of how much it will cost them to stay ahead of any new regulations that could arise in the future.

Whether you're trying to raise capital by selling your securities or thinking about issuing your own securities you should be prepared for changes in legislation. The best way to make sure you're prepared is to take advantage of the experience and knowledge of a qualified attorney.

About Steven W. Vladeck

Steven Vladeck, Esq., is a regular contributor on law reform at Lawyerist. As an expert in Securities law he has been interviewed by several national media outlets including The Wall Street Journal, Fox Business, CNNMoney, the Associated Press and the New York Times. He can be contacted at svladeck@stevenvladeck.com.

Steven W. Vladeck is a technology lawyer who focuses on Internet, intellectual property and finance law. He has nearly 20 years of experience in the field of securities law and is a regular contributor on law reform. His main areas of practice include: start-up companies and technology companies, venture capital investing and private placement transactions, IP licensing, mergers & acquisitions analysis, crowdfunding promotion, international tech transactions and securities regulation. He has been interviewed by the Wall Street Journal and Fox Business News about the crowdfunding program JOBS Act section 506.

Conclusion

A change in the law is inevitable. We have already seen new changes in legal practices that have come about as a direct result of the JOBS Act. These include Regulation A+ and the ability to raise capital on registered transfer agents. The direct effect of these changes is that they make it easier for companies to raise capital by coming out from under the SEC's thumb. However, as we've seen with many aspects of this legislation, this comes with more government oversight. For example, there are now requirements for regulating secondary market sales, which were previously unregulated. It will be very important for issuers to understand how these laws work before trying to sell securities publicly so that they are not inadvertently breaking them.