Don't know what a transfer agent is? You're not alone.
Millions of shareholders who interact with transfer agents regularly don't know who we are or what we do. Here's a quick look into the world of a transfer agent.
A transfer agent is a financial services company that manages and keeps track of registered shareholders for companies that issue stock. As a transfer agent, EQ handles the recordkeeping, reporting and communications for hundreds of U.S. corporations and their millions of shareholders around the world.
Rules & regulations
A transfer agent is well-versed in the complexities of SEC rulings and state regulations for trading and tracking securities. We help publicly owned companies stay on top of regulation changes, implementing appropriate action on behalf of our clients. We make sure we're aligning ourselves with experts in the industry, plan consistently for new regulations and advocate for our clients when the regulations are unclear.
Registered vs. beneficial shareholders
Registered shareholders are individuals or entities who purchased or were issued stock directly from the company. They are individually listed by name as "shareholders of record" on the company register, which is managed by the company's transfer agent. The transfer agent maintains contact information for these shareholders and handles the purchase or issuance, dividend payments, transfer or sale of their shares.
Beneficial shareholders own their shares under a “street name” through a broker/dealer instead of being directly registered. The majority of investors own their shares this way. By default, they are non-objecting beneficial owners (NOBO) meaning their name, share position and address are shared with the companies they've invested in. Beneficial shareholders must specifically opt out, becoming an objecting beneficial owner (OBO) to have their information withheld.
One of the core responsibilities of a transfer agent is maintaining and managing records for their clients. This is the official listing of all registered shares and shareholders, and it includes information such as the shareholder's name and address, as well as stock history, including past transfers, sales and records of dividends paid. The transfer agent must make every effort to keep this information current.
It is the transfer agent's responsibility to update shareholder records with a new address or new contact information if a shareholder makes changes in order to ensure mailings and distributions get to the right person in the right place.
Payments & reporting
Transfer agents are also responsible for making dividend payments to registered shareholders – and reporting that income to the IRS in a timely manner every tax season. Corporations also use the services of a transfer agent to handle major corporate actions such as mergers, acquisitions and spin-offs, and to act as Inspectors of Election at annual meetings. For these one-time special events, they can contract with their established transfer agent or hire one that specializes in these events.
When a private company decides to go public, they hire a transfer agent to issue shares during their Initial Public Offering (IPO). Preoccupied with all the other decisions leading up to the IPO, many companies choose a transfer agent hastily, not realizing that this partner will be managing their shareholders for years to come – ideally for the life of their company.
The transfer agent performs a critical role in making sure the IPO goes smoothly. After the IPO, their real job starts. Qualities such as responsiveness, reliability and depth of experience prove to be more valuable as your company grows.
What to look for in a transfer agent
Client and shareholder satisfaction ratings
Ability to effectively handle both traditional IPOs and SPAC IPOs
Innovative technology functionality
In this complex regulatory environment, it's important to choose a transfer agent that can grow with your company and provide expert guidance as you need it. They should have a reputation for accuracy and reliability, and have disciplined processes in place that protect your company from risk.
Most importantly, your transfer agent should respond quickly to your needs and treat your shareholders the way you would treat them if you could. A reputation for outstanding service and high satisfaction ratings in independent surveys, such as the Group Five annual benchmark survey, should be taken into account. For example, we recently received a 100% Group Five rating for these service areas:
Overall client satisfaction rate
Issuer service overall
Overall shareholder service.
Annual meeting service overall
Ultimately, your transfer agent becomes the face of your company to your shareholders. Now that you know what's at stake, you can make an informed decision.