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.