A transfer agent takes on additional importance 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. As a result, companies with a large number of shareholders may be required to file SEC filings on a frequent basis, which can be expensive and time-intensive. However, in some cases, with the help of a transfer agent, this isn’t necessary.
Section 12(g) of the Act is subject to conditional exclusions or exceptions under two pieces of equity crowdfunding legislation. If the following criteria are met, companies can exclude shareholders who own shares offered under Regulation A (Reg A+):
- They don’t have a float (the number of shares available for trading) of more than $75 million (or, if there isn’t a float, a revenue of more than $50 million).
- They engage an SEC registered transfer agent to file annual reports with audited financials, semi-annual reports with unaudited financials, and event reports that document major changes to shareholders’ rights or the company itself, as required by Regulation A+.
Companies that use Regulation Crowdfunding (Reg CF) to raise up to $1.07 million can also exclude investors who own shares sold through Reg CF if they:
- Do not have a net worth exceeding $25 million.
- Every year, submit all required Reg CF forms, including a financial report.
These two pieces of law make it possible to have thousands of investors on your cap table without having to be a publicly traded company, as long as you follow the standards outlined above, which include hiring a transfer agent.