It’s surprising how often we get calls from startups or other privately held companies who are interested in our equity management software but get hung up on (they think) a sticky issue. “But what do we do about our transfer agent?” The issue is easily resolved by clearing up the misconception that just because you have shares, you need a transfer agent.
The fact is that thevast majority of private companies don’t need a transfer agent at all. While these SEC-registered service providers are vital for handling the complex tracking and recording needs of public (or going-public) companies, for most private companies, they’re an unnecessary cost.
Public companies have more complex needs
Companies that have publicly traded securities typically use transfer agents to keep track of the complex web of individuals and entities that own their stocks and bonds. According to the SEC, most transfer agents are banks or trust companies, or sometimes a company acts as its own transfer agent. A transfer agent handles all administrative burdens related to tracking and recording changes of share ownership, shareholder correspondence, cancelling and issuing certificates, and distributing dividends and tax documentation. For a publicly traded company with strict SEC filing obligations, outsourcing these burdens to a transfer agent makes sense. It’s usually far too complex, time-consuming and risky from a compliance perspective to go it alone.
But for an LLC with a few dozen or even hundreds of shareholders? Hiring a transfer agent is not only overkill, it might not be in your company’s best interest. Most of the routine tasks a transfer agent would handle can be accomplished more cost-effectively with automation and an occasional call to your lawyer. After all, it wasn’t long ago that maintaining a cap-table used to be done on a simple spreadsheet. Today’s software platforms make it infinitely simpler than that, even to manage what you truly need. Outsourcing the unnecessary is throwing money away.
Do you need a transfer agent?
Let’s be clear. Transfer agent companies have an important role. But if you’re still privately owned, your fundraising is conventional, and you’re not on the cusp of an IPO, then, your money may be better spent elsewhere. There are also other benefits to doing it in-house:
Cost.Transfer agent fees will cost your business far more than a software subscription. While public companies can have millions of shares in circulation with multiple layers of ownership and complex regulatory obligations, tracking who owns what in a private company is pretty easy to DIY, especially with the right technology. You probably know most of your shareholders by name, as they are likely to be your employees, key investors or even members of one family; share’s don’t circulate much; and there isn’t a huge volume to track.
Control.Key shareholder and investor relationships and company data are all valuable assets, and you may wish to maintain control of them inside your four walls. While most transfer agents provide adequate security and confidentiality, it is almost always the case that the fewer hands that touch your data, the better.
You have options
There are only a few SEC-regulated fundraising circ*mstances that require a private company to engage a transfer agent. And if an IPO is imminent, it’s probably wise to partner up with a good transfer agent company to guide you through and carry you forward.
But chances are, the lion’s share of your month-to-month tracking and recording of share ownership can be managed by your staff using web-based tool likeCertent Equity Management. For occasional needs like issuing new shares, your can enlist transfer agent services as-needed or your law firm can serve as your transfer agent. But barring those special circ*mstances, save your money, keep your shareholder relationships and data close, and leverage the software tools of your choice.
Want to see how easy equity management is with insightsoftware?Request a demoand we’ll get you started.
FAQs
For private companies, all the basic functions of a transfer agent are needed—maintaining the official record of ownership, issuing stock certificates, cancelling stock certificates, exchanging or converting securities, and managing distributions to stockholders—but it's not required that they be performed by a ...
Why is a transfer agent needed? ›
Transfer agents work for the security issuer to record changes of ownership, maintain the issuer's security holder records, cancel and issue certificates, and distribute dividends.
What is a transfer agent in private equity? ›
An Introduction for Private Equity and Venture Capital Funds
A transfer agent, strictly speaking, is an entity tasked with facilitating the transfer of a security from one party to another. The work of a transfer agent is often expanded, however, to cover a variety of back-office activities for an investment fund.
What kind of information can be confirmed with a transfer agent? ›
A transfer agent is appointed by a company to keep track of who owns the organisation's stock and bonds, and whether those financial assets are registered in the name of an individual investor or brokerage firm.
What is the difference between a transfer agent and a paying agent? ›
The paying agent is responsible for payment initiation. On the other hand, a transfer agent is liable for maintaining the investor's financial record and balance.
What are the risks in transfer agency? ›
There is a high risk of operational error in this labor-intensive and paper-based environment. The internalization of functions within fund groups eliminates independent oversight. TAs are often not transparent to their stakeholders, especially to fiduciaries whom they do not view as their clients.
What are transfer agent fees? ›
Represents a shareholder servicing agent that maintains shareholder records, prepares shareholder reports and maintains the customer service department. Often seen when no 12b-1 fee is in place. This figure is pulled from the fund's annual report and depicted in U.S. Dollars.
How much do transfer agents make? ›
How much does a Transfer Agent make in California? The average Transfer Agent salary in California is $90,306 as of July 25, 2023, but the range typically falls between $78,842 and $103,082.
What is a transfer agent responsible for quizlet? ›
The transfer agent is responsible for the issuance and cancellation of certificates to reflect changes in ownership, acting as the company's paying agent for interest payments on bonds and for cash or stock dividends on equities, acting as proxy agent (sending voting materials) and mailing agent (mailing the company's ...
What are the top transfer agent companies? ›
The top 5 transfer agents for the total population market share include Computershare/BNY Mellon, Equiniti Trust Co/American Stock Transfer & Trust, Continental Stock Transfer & Trust, Broadridge, and Vstock Transfer.
Fees collected from third party agents like odd-lot program administrators, providing services such as shareholder lists. Shareholder-paid DRIP and DSPP fees, plus broker commissions. Fees deducted from the proceeds of a “waiver discount” transaction within a DSPP.
Can you sell shares at a transfer agent? ›
You'll need to contact the transfer agent, via mail or telephone, and ask that the shares are sold. Most transfer agents will do this at no charge and will mail you a check if you request payment that way.
What companies are transfer agents? ›
The top 5 transfer agents for the total population market share include: Computershare, Equiniti Trust Co/American Stock Transfer & Trust, Continental Stock Transfer & Trust, BNY Mellon, and Broadridge. Computershare maintains its lead with 25.7% market share in 2022 compared to 27.2% in 2021.
What is the difference between a record keeper and a transfer agent? ›
Registrars can be record keepers. But the transfer agents work as shareholders' record-keepers and corporate services providers. The work of the transfer agent is to see how many outstanding shares are present. In addition, they look at how many shares are being traded daily and their respective owners.
What is the difference between a transfer agent and a registrar? ›
A transfer agent's principal functions are to issue and cancel certificates to reflect changes in ownership of the securities of an entity and to act as an intermediary for the company. A registrar's function is to maintain the register of the issuer for each issue of securities.
How do I register a share transfer in private company? ›
Documents Required For Transfer of Shares in Private Limited Company
- Share certificate.
- Board resolution for verifying the Transferor's notice.
- Transferor's notice to the company.
- Offer letter sent.
- Objection letter from the existing shareholders.
- Share transfer agreement form along with the stamp duty returned.
