The JOBS Act of 2012 has made it much easier for private companies to connect with investors and raise capital. While this presents a great opportunity to grow your business, it also adds an additional layer of administration when it comes to tracking your investors’ holdings and communicating with them regularly.
There are a few ways to manage your cap table. You can pay your law firm to take care of it (at their hourly rate). Or you can handle it yourself with spreadsheets or software. Or you can partner with a transfer agent to do the work for you. There are many great reasons to outsource your cap table to a transfer agent. If you are pursuing a Reg A+ capital raise, you MUST engage an SEC-registered transfer agent anyway. But even if you are not, here are a few reasons to consider it:
Expertise
Make sure you are in compliance. There is a lot more to managing your cap table than keeping track of who owns what. If you answer “no,” “I didn’t even think about that!” or “say whaaa?” to any of these questions, you will benefit from the help of a transfer agent.
- Are you confident that you fully understand your obligations regarding securities regulations?
- Are you prepared to protect your investors from losing possession of their abandoned securities?
- How will you involve investors in voting on key decisions?
- Do you know the correct legal requirements to transfer ownership upon death of an investor? Or a divorce? Or bankruptcy?
- What’s your liability if you replace a lost certificate that is sold or transferred to another person? Or if an investor has pledged it as collateral for a loan?
- Are you able to prove to a state that you have been complying with abandoned property rules? Are you able to prove your investors are not “lost?”
- Are you set up to distribute dividends via automated clearing house (ACH), check or wire?
- Can you track W8/W9 tax withholding status?
- Are you prepared to report payments for tax purposes to the IRS and provide 1099s to your investors?
There is a lot to think about when it comes to dealing with investors. And mistakes in this area can be costly.
Efficiency
Stay focused on your company. Managing the cap table and all the related activity is time consuming. Allowing a transfer agent to handle this work frees up valuable time for you and your team to focus on growing your business, rather than monitoring recordkeeping details and financial regulations.
Security
Keep your investor data secure. Many companies keep their cap table data on a spreadsheet, which might work – up to a point (provided the file doesn’t only reside on a single laptop that accidently gets left in a cab). But as you grow and the data becomes more complex, it is worth considering a transfer agent with rigorous security protocols, data protection measures, disaster recovery and business continuity plans as well as legal and compliance support.
Readiness
Set the stage for your company’s growth. A transfer agent can help in the long term with important corporate transactions such as DTC eligibility, initial public offerings, subscriptions, tender offers and acquisitions.
Investor communications
Keep your investors engaged and informed. As your list of investors grows it becomes more important to keep the lines of communications open, but more time consuming and complex to do so. A transfer agent can:
- Manage communications via email and mail
- Offer your investors a way to proactively look at their holdings and find important company documents on their own via desktop, tablet or smartphone
- Allow investors to make inquiries via a toll free call center line or live chat
- Coordinate an annual or special shareholder meeting, either in person or via an online virtual meeting and distribute the voting materials and collecting/tabulating votes from investors by mail or online
A host of other communications to investors can be managed by a transfer agent and documents can be maintained online for holders to access later.
Your company is growing and you have more investors to look after. Don’t take the burden of investor recordkeeping and communication on your own. Let an experienced transfer agent handle it for you so you can focus your efforts on running your business and rest assured knowing that as your transfer agent is protecting you from making a costly mistake.