Private Companies - How do you keep and maintain good shareholder recordkeeping processes for your shareholders?

Transfer Agents – Not Just for Public Companies

Private issuers benefit from hiring independent recordkeeping services

By Patrick Tracey

A transfer agent performs a number of tasks for publicly traded companies. But that sells it a little short. Private issuers, too, have good reason to partner with a transfer agent for their recordkeeping needs.

If you’re at a private company, your first question may be, “What the heck IS a transfer agent anyway?” If you type “transfer agent” into a Google News search, you’ll get a little info about stock transfer agents, but it will be dwarfed by news stories about the trade and free agency market for English Premier League soccer.

Saving discussions of Manchester United and West Ham for another day, you should know that for our purposes a transfer agent helps companies maintain accurate and complete records of share ownership, as well as administering related processes (dividend payments, proxy mailings, etc.). Of course, transfer agents do a lot more than that, but this is a good 30,000-foot description.  

It’s not just public companies that benefit from a relationship with a transfer agent. Private companies that have issued stock should explore the options of working with a transfer agent for recordkeeping services, and here’s why:

Good governance practices

Your company may not be listed on an exchange, and shares may only trade via private sale, but many of the same needs of a public company exist:

• You certainly want to have a record of shareholders and their ownership positions and history
• You need to keep track of records for tax purposes if you pay cash or stock dividends
• You need to manage proxy solicitation and voting if your company holds an annual shareholder meeting

Corporate records must be administered in the best interests of the company, employees, shareholders and prospective new investors. By retaining a trusted independent service provider, you free up resources within your company to focus on your core business initiatives.

Data security

A good transfer agent provides strong data security to protect shareholder records from hackers and other threats.  This is an important factor, as both you and your shareholders may want the convenience of having online access to company information and account holdings. Transfer agents are held to rigorous auditing standards by their clients and by regulators to ensure sensitive data remains secure.

This is an opportunity to provide your shareholders, potential investors and management team with the comfort of knowing that these records are safe, and not on a thumb drive someone dropped on the train. 

Expertise

Transfer agents have significant expertise in administering shareholder records and matters of governance and compliance.

This expertise provides assurance to your investors that their shareholding records are protected and managed in the same manner as large public corporations. Regulations change often and transfer agents work hard to keep compliance costs under control while also ensuring that management of your records conforms to the latest requirements.

Also, should your company decide to go public down the road, your transfer agent has can manage the IPO process and other future needs as a public company.  

Crowdfunding

For companies that issue shares via crowdfunding platforms, the Securities and Exchange Commission encourages the use of a transfer agent to ensure compliance with all regulations.

Securities sold in a crowdfunded offering are usually transfer-restricted for one year and are exempt from certain reporting requirements if the company retains a registered transfer agent, and doesn’t exceed $25 million in assets.

Working with a transfer agent is an easy way to meet the new regulations requiring companies that use Web-based crowdfunding portals maintain accurate records of securities transactions.

Conclusion

There are no snow days for a transfer agent. While they’re not “sexy” functions, regulatory compliance and shareholder recordkeeping are essential for the success of your company.

For the most part, private company needs are not of the same complexity as a publicly traded entity. However, working with a transfer agent can help you reduce the risks associated with shareholder records and free you up to manage and grow your business.  Independent transfer agents have invested a great deal in infrastructure, data security, disaster recovery and business continuity.  There is also the opportunity to tap into the expertise resident within your transfer agent to remain in compliance, develop good governance practices and develop a terrific business partner as your company grows.