Transfer Agent Roles – Securities Lawyer 101- Go Public Blog Posted on July 1, 2012 by Brenda Hamilton, Attorney Transfer Agents 101 A shareholder of a company has the ability to own securities and transfer the ownership of those securities. Their ownership of securities is reflected on the issuer’s shareholder list. A transfer agent’s role is to issue and cancel certificates to reflect changes in ownership of an issuer’s securities and to act as an intermediary for the company. A registrar’s function is to maintain the issuer’s register for each issue, transfer and cancellation of securities. A registrar records the name, address and tax identification or social security number of each individual and entity holder. Typically the transfer agent and registrar are the same entity. Public companies must maintain a record of shareholders under state corporate law and often hire a transfer agent for that purpose. Transfer agents have to confirm the number of shares outstanding and the identity, tax id number, address and holdings of record owners entitled to vote. Because transfer agents are intermediaries between public companies and their shareholders, it is critical for secondary trading that transfer agent operations are efficient and their records are accurate. Transfer Agents Functions. The typical functions transfer agents include but are not limited to the following: ♦ Maintaining an official record of securities issued and outstanding; ♦ Maintaining shareholder account information such as name and address; ♦ Handling shareholder requests; ♦ Effecting transfers of ownership; ♦ Issuing and canceling certificates representing shares; ♦ Transferring shares to and from shareholders to their broker-dealer; ♦ Distributing dividends; ♦ Tax reporting; ♦ Performing annual meeting services; ♦ Performing special meeting services; ♦ Vote tabulation in connection with annual or special meetings; and ♦ Searching for lost shareholders. Regulation of Transfer Agents. State laws governing the activities of a transfer agent are based on the Uniform Commercial Code (“UCC”), Article 8, which applies to investment securities. The UCC provides the rights and liabilities of the purchaser, seller, and transfer agent in securities transactions. Transfer agents are also regulated by the Securities and Exchange Commission (“SEC”). SEC regulations are designed to ensure that transfer agents act promptly and accurately. Transfer agents for corporations listed on some stock exchanges must meet additional requirements. The SEC’s Division of Trading and Markets regulates transfer agents under Section 17A(c) of the Securities Exchange Act of 1934, as amended. Section 17A(c) establishes: ♦ Performance standards for issuing new certificates and related recordkeeping and reporting rules. ♦ Prompt and accurate creation of security holder records. ♦ Safeguarding of securities and funds. Under Section 17A(c)(1) of the Exchange Act, a transfer agent cannot perform any transfer agent function for a qualifying security unless that transfer agent is registered with the SEC. A qualifying security is any security registered under Section 12 of the Exchange Act. DTC and Transfer Agents The Depository Trust & Clearing Corporation (“DTCC”), through its subsidiary, Depository Trust Company (“DTC”) provides clearing, settlement and information services for the securities of publicly traded companies. DTC is the only securities depository for securities in the U.S. Most large U.S. broker- dealers and banks are DTC participants who deposit securities with, and hold those securities through DTC. There are approximately 400 DTC participants in the U.S. Shares held by DTC are reflected in the shareholder records in the name of its nominee, Cede & Co. How Shares are Held Security Ownership is represented one of three ways: ♦ Physical Certificate-Securities Ownership is represented by certificates issued and registered in the shareholder’s name and reflect the number of shares held. ♦ Street name – Security Ownership is registered in the shareholder’s broker- dealer or bank’s street name who issues account statements to the shareholder of its holdings and pays dividends or interest to the shareholder as well as mails proxy materials or other communications. ♦ Direct registration – Security Ownership is registered directly on the transfer agent’s books without a physical certificate. The shareholder receives a statement of ownership, rather than a physical certificate. Before any issuer going public engages its transfer agent it should determine if the transfer agent will meet its operational requirements including participation in DTC’s FAST program. Issuer’s using smaller transfer agent should inquire as to ownership of the transfer agency, and whether the transfer agent has sufficient internal controls in place to facilitate accurate securities issuances, transfers and cancellations . The issuer should also become familiar with how the transfer agent charges for its services including whether its fees are: ♦ a flat fee or transaction based; ♦ are non-refundable; ♦ to purchase, sell and transfer their shares; ♦ if the issuer participates in DTC’s FAST program; and ♦ if the issuer the terminates the transfer agent’s services. For further information about this article, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 201 S, Boca Raton Florida, (561) 416-8956, by email at firstname.lastname@example.org or visit www.gopublic101.com. 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