Growing Pains: How and When to Engage a Transfer Agent 


Companies at different stages have different challenges and needs when it comes to investor record keeping, communications and compliance requirements. It is crucial for management to adequately plan ahead in this regard in order to avoid headaches down the road. Here’s a quick guide to company stages, their transfer needs, and some key considerations when shopping for transfer agent services.

  1. Startups and pre-seed investment companies: At this very early stage, a company is typically using founders’ equity or has raised some startup capital from close friends or family. Records of who owns what are kept internally via spreadsheets or self-administration software like OPTRACK, and investor communications are often handled directly by the CEO or founder. This type of arrangement works well at this stage, particularly if there are only a handful of investors that the founder knows well.
  2. Seed stage companies: At this point, the company has typically taken in outside capital from angel investors, venture capital or, increasingly, equity crowdfunding channels. These investors don’t necessarily know the CEO/founder personally, and the demand for transparency, accountability and accuracy in investor record-keeping increases. For seed stage businesses, these duties are often still performed in-house but with the assistance of a law firm or CFO. As the business scales and internal attention is diverted to growth management, investor administration and accounting can fall by the wayside. This may result in incomplete records or non-compliant transfers. Forward-thinking firms are starting to engage a transfer agent for this work to avoid these issues.
  3. Growth companies: This is when the need for a dedicated, experienced transfer agent becomes apparent. Growth companies have typically raised Series A or later funding rounds from venture capital firms, private equity companies and other accredited investors like family offices. In some cases, this type of firm lists on a stock exchange via an IPO or trades over-the-counter. In virtually any scenario at this stage, a company  has the requirement to keep accurate books and records regarding its investors, be it done via a law firm, accounting firm or a transfer agent, and must meet high standards of corporate governance, transparency and investor communications. In-house attempts to manage this work often fail or become costly in terms of time, resources and potential regulatory lapses. In the case a traditional IPO process or Regulation A+ offering, recordkeeping by an SEC-registered transfer agent is a requirement.

The key takeaways? There are two. First, as your company grows, so must the sophistication of its investor-related processes and record-keeping. Institutional investors expect a high standard of corporate governance, often including but not limited to operating the business as a stand-alone entity able to balance the interests of its stakeholders with those of its founders.

Secondly, it makes sense to begin working with an experienced transfer agent earlier rather than later. By doing so, your records will be kept properly from the outset and you’ll avoid an expensive and time-consuming catch-up process later. Engaging in this when an IPO is imminent can delay your timeline. Plus, you’ll have established the investor relations and governance infrastructures necessary to avoid communications, regulatory and compliance issues as your company grows. You’ll keep your investors happy and save a lot of time. Better yet, a good transfer agent provides disaster recovery services and dedicated information security, compliance and internal audit teams, meaning you can manage the business secure in the knowledge that your investor records are protected and accurately maintained

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