If you have a private company with investors, you may have asked yourself, “Do I need a Transfer Agent?” 

Legally speaking, as a private company you don’t need to work with a Transfer Agent any more than you have to work with Accountants, Attorneys, Broker Dealers or any other of the Professional Service providers you probably already have on the payroll.

This document attempts to clarify and define 1) What a Transfer Agent is, 2) What a Transfer Agent does and 3) 5 reasons many private companies are .


What is a Transfer Agent?

The SEC “defines a “transfer agent” as any person who engages on behalf of an issuer of securities or on behalf of itself as an issuer of securities in: 

(A) countersigning such securities upon issuance; 

(B) monitoring the issuance of such securities with a view to preventing unauthorized issuance (i.e., a registrar);

(C) registering the transfer of such securities; 

(D) exchanging or converting such securities; or 

(E) transferring record ownership of securities by bookkeeping entry without the physical issuance of securities certificates.”


What does a Transfer Agent do?

The key services and responsibilities of a Transfer Agent can be broken down into 4 buckets: 

Again, defined by the SEC as:

“(i) track, record, and maintain on behalf of issuers the official record of ownership of each issuer’s securities; 

(ii) cancel old certificates, issue new ones, and perform other processing and recordkeeping functions that facilitate the issuance, cancellation, and transfer of those securities; 

(iii) facilitate communications between issuers and registered securityholders; and 

(iv) make dividend, principal, interest, and other distributions to securityholders”


What does all this mean?

A registered Transfer Agent company is a 3rd party firm that, under the scrutiny of the Securities and Exchange Commission, certifies, manages, tracks and retains books & records, reporting and communication specific to a company’s Cap Table.

Up till recently, Transfer Agents have been most commonly found in serving public companies for the sheer fact that historically there have been more shareholders in public companies than private companies.  

So, the question remains, “Do I need a transfer agent for my private company?”

Here are 3 reasons you may want to consider a Transfer Agent relationship:

  1. Cost Reduction: Traditional “transfer agent services” have been assigned out to various professional service providers like attorneys whose hourly rates are higher than most would like to pay for simple management, updates and record keeping.  Self administering is another popular option but as you grow, the work load and management headaches also grow, leaving you with the need to staff appropriately.  Not to mention, mistakes are costly and can be career ending in some cases.
  2. Trusted 3rd Party: If building a company through accepting outside capital is important to you, trust is the only thing that matters.  Investors may like you but if they can’t trust the information and communication coming to them, the relationship may end sooner than you would like.  Certification- Having a registered 3rd party, Transfer Agent, certifying the accuracy of books & records as well as retaining all data for reporting while facilitating issuances, transfers and correspondence that you can point to may help strengthen trust with your network. Liquidity- Alternative private investments are becoming more liquid every day.  Having a 3rd party that falls under the purview of the SEC involved in the leveraging or liquidation of securities helps both the issuer and investor sleep at night.
  3. Transfer of Risk and Efficient Support:  Reducing stress around management and workload is a no brainer in most scenarios.  What a lot of private companies forget to think about is the risk and support associated with many of the services provided by a registered Transfer Agent.  All of the services and actions taken by the TA falls under an annual audit of the SEC and are the responsibility of your Transfer Agent company.  Not only are you getting the service provider’s support but you’re also getting a partner that assumes liability.

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