Startup Crowdfunding and Transfer Agent Services

A transfer agent will save you time and money by allowing you to focus on your business growth rather than administrative and transfer agent chores. In the era of crowdfunding, transfer agents are even more essential.


Startup Crowdfunding and Transfer Agent Services

As a new investment fund sponsor, one of the most important decisions you can make is to hire a transfer agent. A transfer agent will save you time and money by allowing you to focus on your business growth rather than administrative and transfer agent chores. In the era of crowdfunding, transfer agents are even more essential. So, what exactly is a transfer agent, how does it function and why is it so important for businesses?

What Does a Transfer Agent Do?

An company or an investment fund and its shareholders are connected through an SEC-registered transfer agent as an intermediary. The transfer agent is responsible for bookkeeping, record keeping and communicating with the fund’s shareholders on important issues such as capital calls, distribution payments, proxy voting and tax paperwork.

A transfer agent ensures that dividends and interest are paid to shareholders in accordance with their investment agreements. When a private company decides to go public through an initial public offering, a transfer agent is usually in charge of maintaining track of the shares issued in the initial public offering (IPO).

What Are the Benefits to a Startup Fund of Using a Transfer Agent?

The type of recordkeeping and shareholder interaction that a transfer agent conducts can be exceedingly time intensive for any fund sponsor, especially one who lacks expertise or competence in investor relations. Whether the investor base consists of many small scale investors or a few demanding institutional investors, the presence of a transfer agent professionalizes investor facing functions without being a distraction to management.

Because startup fund managers have limited time, outsourcing the time-consuming transfer agent activities of compiling shareholder information and sending payments, reports and other communications lets to focus on more important investment, sales and growth goals.

Transfer Agent Advantages for Crowdfunding

In the context of equity crowdfunding, a transfer agent serves an additional purpose. According to Section 12(g) of the Exchange Act, funds having more than 2,000 accredited investors or 500 non-accredited investors must register under the Act and become publicly reporting companies. This means that businesses with a large number of shareholders may be forced to file SEC reports on a regular basis, which can be expensive and time-consuming. However, this is not essential in some instances with the assistance of a transfer agent.

Two pieces of equity crowdfunding legislation create conditional exclusions or exceptions to Section 12(g) of the Act. A company can exclude shareholders who own shares offered under Regulation A+ if the company meets the following criteria:

  • It does not have a float (the number of shares available for trading) of more than $75 million (or a revenue of more than $50 million if there isn’t a float).
  • It files annual reports with audited financials, semi-annual reports with unaudited financials and event reports that document significant changes to shareholders’ rights or the company itself, as required by Regulation A+.
  • It uses an SEC-registered transfer agent

Companies raising up to $1.07 million using Regulation Crowdfunding can additionally exclude investors who own shares sold through Regulation Crowdfunding if they:

  • Do not have a net worth of more than $25 million
  • File all required Regulation Crowdfunding forms, including a financial report every year.

These two pieces of legislation allow you to have thousands of investors on your cap table without having to be a publicly traded business, as long as you meet the criteria described above, which includes using a transfer agent.

The Many Advantages of Transfer Agent Services

Using a transfer agent protects companies not only from the costly risks of mistakes in shareholder records, reporting and dividend distribution, but it also allows them to focus their time and resources on growth rather than transfer agent tasks and administrative difficulties. Transfer agent solutions help funds expand by integrating with crowdfunding platforms and facilitating the onboarding of new investments as well as systematizing continuing transfer agent service support for investors.

Funds that want to raise money through equity crowdfunding can hire a transfer agent to avoid the hassles and costs of filing public reports while sourcing capital from thousands of investors. As long as they follow the requirements of each regulation outlined above, including contracting an SEC registered transfer agent, funds can avoid the main disadvantage of raising funds through crowdfunding under Regulation A+ and Regulation Crowdfunding.

Learn why industry leaders trust us for their back office

Let’s discuss how Phoenix can elevate your investor experience