Raise your next round on StartEngine. Apply Now
Raise your next round on StartEngine. Apply
Get iOS App Sign Up
November 27, 2019 | 4 Min Read

Why Your Startup Needs a Transfer Agent

transfer agent

Why Your Startup Needs a Transfer Agent

As a growing startup, one of the most important decisions you can make is investing in a transfer agent. Transfer agents save startups critical time and money to use for growth, rather than administrative processes.

Let’s explore what a transfer agent is, how they operate, and why they’re important for startups.

What Is a Transfer Agent?

An SEC-registered transfer agent is a liaison between a company, whether it’s public or private, and its shareholders. The transfer agent handles bookkeeping and communications between the company and its shareholders around important things like corporate voting.

Transfer agents also ensure that shareholders receive payments that meet their investment terms, including dividend payments, and interest payments. In the case that a private company chooses to go public via initial public offering (IPO), a transfer agent is usually in charge of keeping the records of the shares issued to the public.

Why Are Transfer Agents Important to Startups?

The type of recordkeeping and shareholder communications that transfer agents handle can be incredibly time-consuming for any company, especially one without experience and expertise in investor relations. 

Startup founders have very little free time, and outsourcing the painstaking duties of organizing shareholder information and properly distributing payments, reports, and other communication allows startup leaders to focus on key growth initiatives.

In the context of equity crowdfunding, transfer agents also serve an additional function. According to Section 12(g) of the Exchange Act, companies with over 2,000 accredited investors or 500 non-accredited investors are required to register under the Exchange Act and become a publicly reporting company. This means companies that have acquired a large number of shareholders may need to regularly file SEC reports, which can be expensive and time-consuming.

However, the two regulations of equity crowdfunding provide conditional exemptions, or exceptions, to Section 12(g). Regulation A+ (which allows companies to raise up to $50M in a 12-month period) states that companies can exclude the investors who hold shares sold under Regulation A+ as long as the company:

  1. Doesn’t have a “float”, the number of shares available for trading, of more than $75M (or if there is no float, then more than $50M in revenue)
  2. Makes the required filings under Regulation A+, which includes annual reports with audited financials, semi-annual reports with unaudited financials, and event reports that detail material changes to the rights of shareholders or to the business itself
  3. Uses a registered transfer agent

Under Regulation Crowdfunding, the regulation we use most often at StartEngine, which allows companies to raise up to $1.07M,  companies can also exclude the investors who hold shares sold under Regulation Crowdfunding as long as the company:

  1. Has less than $25M in assets
  2. Makes the required filings under Regulation Crowdfunding, which includes an annual financial report

These two regulations make it possible to have thousands of investors on your cap table without being a publicly-reporting company, provided the business meets the conditions above, which is great news for equity crowdfunding!

Conclusion

Engaging a transfer agent not only protects startups from the costly risks associated with mistakes in shareholder records, reporting, and distribution of dividends, but also allows startups to put their time and money toward maximizing growth instead of administrative hassles.

Companies seeking to raise money via equity crowdfunding can also hire a transfer agent so they can be exempt from the responsibility and costs of filing public reports while having thousands of investors on their cap table under Regulation A+ and Regulation Crowdfunding, as long as the company meets the conditions of each regulation listed above.

Luckily, companies that successfully raise capital on the StartEngine platform can subscribe to StartEngine’s SEC-registered transfer agent StartEngine Secure! In addition to raising capital on our platform, you can also turn to StartEngine to handle your investor relations and cap table management after your raise has closed.

StartEngine also plans to launch a secondary trading marketplace (currently pending regulatory approval) that will allow investors to trade shares in companies that raised capital via equity crowdfunding. StartEngine’s Transfer Agent, Secure,  will be a central part of that platform and facilitate trading.

To learn more about how StartEngine can support your business, from crowdfunding to investor management to trading, fill out our application to speak with our team!

Want to stay up to date with the latest posts from StartEngine? Sign up here:

You May Also Like

Important Message

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. INVESTMENTS ON STARTENGINE ARE SPECULATIVE, ILLIQUID, AND INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE POSSIBLE LOSS OF YOUR ENTIRE INVESTMENT.

www.StartEngine.com is a website owned and operated by StartEngine Crowdfunding, Inc. (“StartEngine”), which is neither a registered broker-dealer, investment advisor nor funding portal.

Unless indicated otherwise with respect to a particular issuer, all securities-related activity is conducted by regulated affiliates of StartEngine: StartEngine Capital LLC, a funding portal registered here with the US Securities and Exchange Commission (SEC) and here as a member of the Financial Industry Regulatory Authority (FINRA), or StartEngine Primary LLC (“SE Primary”), a broker-dealer registered with the SEC and FINRA / SPIC. You can review the background of our broker-dealer and our investment professionals on FINRA’s BrokerCheck here. StartEngine Secondary is an alternative trading system (ATS) regulated by the SEC and operated by SE Primary. SE Primary is a member of SIPC and explanatory brochures are available upon request by contacting SIPC at (202) 371-8300.

StartEngine facilitates three types of primary offerings:

1) Regulation A offerings (JOBS Act Title IV; known as Regulation A+), which are offered to non-accredited and accredited investors alike. These offerings are made through StartEngine Primary, LLC (unless otherwise indicated). 2) Regulation D offerings (Rule 506(c)), which are offered only to accredited investors. These offerings are made through StartEngine Primary, LLC. 3) Regulation Crowdfunding offerings (JOBS Act Title III), which are offered to non-accredited and accredited investors alike. These offerings are made through StartEngine Capital, LLC. Some of these offerings are open to the general public, however there are important differences and risks.

Any securities offered on this website have not been recommended or approved by any federal or state securities commission or regulatory authority. StartEngine and its affiliates do not provide any investment advice or recommendation and do not provide any legal or tax advice concerning any securities. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. StartEngine does not verify the adequacy, accuracy, or completeness of any information. Neither StartEngine nor any of its officers, directors, agents, and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, or completeness of any information on this site or the use of information on this site.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid, and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks, and you should complete your own independent due diligence regarding the investment. This includes obtaining additional information about the company, opinions, financial projections, and legal or other investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment. See additional general disclosures here.

By accessing this site and any pages on this site, you agree to be bound by our Terms of Use and Privacy Policy, as may be amended from time to time without notice or liability.

Canadian Investors

Investment opportunities posted and accessible through the site will not be offered to Canadian resident investors. Potential investors are strongly advised to consult their legal, tax and financial advisors before investing. The securities offered on this site are not offered in jurisdictions where public solicitation for offerings is not permitted; it is solely your responsibility to comply with the laws and regulations of your country of residence.

California Investors Only – Do Not Sell My Personal Information (800-317-2200). StartEngine does not sell personal information. For all customer inquiries, please write to contact@startengine.com.

StartEngine Marketplace

StartEngine Marketplace (“SE Marketplace”) is a website operated by StartEngine Primary, LLC (“SE Primary”), a broker-dealer that is registered with the SEC and a member of FINRA and the SIPC.

StartEngine Secondary (“SE Secondary”) is our investor trading platform. SE Secondary is an SEC-registered Alternative Trading System ("ATS") operated by SE Primary that matches orders for buyers and sellers of securities. It allows investors to trade shares purchased through Regulation A+, Regulation Crowdfunding, or Regulation D for companies who have engaged StartEngine Secure LLC as their transfer agent. The term “Rapid,” when used in relation to transactions on SE Marketplace, specifically refers to transactions that are facilitated on SE Secondary, This is because, unlike with trades on the StartEngine Bulletin Board (“SE BB”), trades on SE Secondary are executed the moment that they are matched.

StartEngine Bulletin Board ("SE BB") is a bulletin board platform on which users can indicate to each other their interest to buy or sell shares of private companies that previously executed Reg CF or Reg A offerings not necessarily through SE Primary. As a bulletin board platform, SE BB provides a venue for investors to access information about such private company offerings and connect with potential sellers. All investment opportunities on SE BB are based on indicated interest from sellers and will need to be confirmed. Even if parties express mutual interest to enter into a trade on SE BB, a trade will not immediately result because execution is subject to additional contingencies, including among others, effecting of the transfer of the shares from the potential seller to the potential buyer by the issuer and/or transfer agent. SE BB is distinct and separate from SE Secondary. SE Secondary facilitates the trading of securities by matching orders between buyers and sellers and facilitating executions of trades on the platform. By contrast, under SE BB, SE Primary assists with the facilitation of a potential resulting trade off platform including, by among other things, approaching the issuer and other necessary parties in relation to the potential transaction. The term “Extended”, when used in relation to transactions on SE Marketplace denotes that these transactions are conducted via SE BB, and that these transactions may involve longer processing times compared to SE Secondary for the above-stated reasons.

Even if a security is qualified to be displayed on SE Marketplace, there is no guarantee an active trading market for the securities will ever develop, or if developed, be maintained. You should assume that you may not be able to liquidate your investment for some time or be able to pledge these shares as collateral.

The availability of company information does not indicate that the company has endorsed, supports, or otherwise participates with StartEngine. It also does not constitute an endorsement, solicitation or recommendation by StartEngine. StartEngine does not (1) make any recommendations or otherwise advise on the merits or advisability of a particular investment or transaction, (2) assist in the determination of the fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

Invest in StartEngine

190% YoY Growth: Invest in the leading equity crowdfunding platform.

This Reg A+ offering is made available through StartEngine Crowdfunding, Inc. This investment is speculative, illiquid, and involves a high degree of risk, including the possible loss of your entire investment. For more information about this offering, please view StartEngine’s offering circular and risks associated with this offering.

 

Kevin O’Leary is a paid spokesperson for StartEngine. Read the 17(b) disclosure here.

Founder's Summit Application