Transfer Agent For Startup Crowdfunding

Investing in a transfer agent is one of the most significant decisions you can make as a new investment fund sponsor.


Transfer Agent for Startup Crowdfunding

Investing in a transfer agent is one of the most significant decisions you can make as a new investment fund sponsor. A transfer agent will free up time and money so you can focus on growth rather than administration and transfer agent tasks. So, what is a transfer agent, how does it work, and why is it vital for businesses.

What Is a Transfer Agent and What Does a Transfer Agent Do?

An SEC-registered transfer agent serves as a link between an investment fund and its shareholders. The transfer agent is in charge of bookkeeping, record keeping and communicating with the fund’s shareholders about crucial matters including:

  • capital calls
  • distribution payments
  • proxy voting and tax documents.

A transfer agent ensures that shareholders get payments that are in accordance with their investment terms, such as dividends and interest. A transfer agent is normally in charge of keeping track of the shares issued to the public when a private business decides to go public through an initial public offering (IPO).

For any fund sponsor, especially one without experience or competence in investor relations, the type of recordkeeping and shareholder interaction that a transfer agent handles can be extremely time consuming.

What Are the Benefits of a Transfer Agent for Startup Funds?

Due to the limited time available to startup owners, outsourcing the time-consuming transfer agent tasks of compiling shareholder information and appropriately sending payments, reports, and other communications allows them to focus on essential investment, sales and growth objectives.

A transfer agent also provides an extra purpose in the context of equity crowdfunding. Funds with more than 2,000 accredited investors or 500 non-accredited investors must register under the Exchange Act and become publicly reporting companies, according to Section 12(g) of the Act. This means that corporations with a large number of shareholders may be required to file SEC filings on a frequent basis, which can be costly and time-consuming.

The two equity crowdfunding laws, on the other hand, establish conditional exemptions or exceptions to Section 12 of the Act (g). Companies can exclude investors who hold shares sold under Regulation A+ as long as the company:

  • Doesn’t have a float (the number of shares available for trading) of more than $75 million (or more than $50 million in revenue if there isn’t afloat).
  • Filings required by Regulation A+, include annual reports with audited financials, semi-annual reports with unaudited financials, and event reports that document important changes to shareholders’ rights or the firm itself.
  • Makes use of a licensed transfer agent

Companies that raise up to $1.07 million through Rule Crowdfunding can also exclude investors who hold shares sold under Regulation Crowdfunding as long as the company:

  • Has a net worth of less than $25 million
  • Makes all required Regulation Crowdfunding filings, including an annual financial report.

These two pieces of legislation make it possible to have thousands of investors on your cap table without having to be a publicly-traded company, as long as the company fits the requirements outlined above, including engaging a transfer agent.

Using a transfer agent not only protects startups from the costly risks associated with errors in shareholder records, reporting, and dividend distribution, but it also helps them to focus their time and resources on optimizing growth rather than administrative headaches. Transfer agent systems also facilitate scale by integrating with crowdfunding platforms and streamlining the onboarding of new investments and thereafter systematizing ongoing transfer agent service support to investors.  

Funds that want to raise money through equity crowdfunding can hire a transfer agent to avoid the responsibilities and costs of filing public reports while having thousands of investors on their cap table under Regulation A+ and Regulation Crowdfunding, as long as they meet the requirements of each regulation listed above.

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