Startup Crowdfunding and Transfer Agent Services

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.

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.

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.