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Section 16 Forms,
As Per The Securities Act Of 1934
( A Discussion On SEC Forms 3, 4, and 5 )
by Nanuk Warman, CPA, CMA, CFA
Updated April 26th, 2022
The following is a general overview of SEC Forms 3, 4, and 5, and is not legal advice. Section 16 reporting requirements may differ from filing to filing, and this article may or may not be applicable to you. If you need assistance with SEC compliance and financial filings, please contact us here.
Beneficial Ownership Statements:
SEC Forms 3, 4, and 5
In this article, I am going to explain the differences between SEC Forms 3, 4, and 5, as per Section 16 of The Securities Act Of 1934.
For your reference, I provide links to the forms below, along with a sample of what they should look like when they're done.
But first...
Let's dive-in to what the forms are for and who needs to file one:
It's All About Insider Trading
Anyone who's an 'insider' of a securities-issuing company in the United States must file "Statement Of Beneficial Ownership" to the SEC on a scheduled and 'current' basis using Forms 3, 4, and 5.
These disclosures are related to Rule 16 of the Securities Act of 1934, and track what a control person in the company — or any shareholder who controls more than 10% of the company's stock — is doing with their shares.
Normally, Forms 3, 4, and 5 are used to disclose the stock positions of officers, directors, and beneficial owners of the company, but may also include anyone in a policy making function.
These 'insiders' must report any transaction related to their holdings in the company within two days of any transaction made with their securities.
Information included in the filings is related to sales... acquitions...exercised options... debentures...loans...or any promises or commitments made with their stock.
Generally speaking...
There Are Three Different Kinds Of
Beneficial Ownership Statements
FORM 3: INITIAL STATEMENT OF BENEFICIAL OWNERSHIP
OF SECURITIES
Any control person in the company (such as an officer, director, benifical owner, or person controlling more than 10% of the company's stock) must file a Form 3 to the SEC within 10 days of acquiring their 'insider' status.
A mandatory disclosure, failure to file a Form 3 declaration with the SEC can result in harsh fines and even criminal prosecution.
Click here to see Form 3 Guidelines >>
Form 3 is two pages, relatively simple to fill-out, and is estimated to take about 30 minutes to complete.
There are three main parts to the form:
Part 1: includes Name and Address of reporting person, name and trading symbol of the issuer, and the nature of the relationship the reporting person has with the company.
Part 2: requires a complete list of the non-derivative securities the reporting person has in the company comapny (ie, stocks, bonds, options, etc.)—Including the amount(s), and if they are owned directly or indirectly).
Part 3: A list and description of any Derivative Securities held in the company by the reporting person, if any.
Prepare and file your SEC Form 3 here >>
In Summary: SEC Form 3 is an initial declaration of "insider" status in an issuing company (which includes new officers, directors, or shareholders controlling more than 10% of the company's stock) disclosing all their holdings in the company within 10 days of assuming 'insider' status.
See a completed Form 3 here >>
Insiders Must Report Any Trading Activity
Within 2 Days Of The Transaction
FORM 4: STATEMENT OF CHANGES IN BENEFICIAL OWNERSHIP
Anytime an “insider” (including officers, directors, or anyone controlling more than 10% of an issuer’s stock) buys, sells, or excises an option for a company security, they must submit a Form 4 to the SEC within two days of the transaction.
Click here to see Form 4 guidelines >>
Known as a ‘Statement Of Changes In Beneficial Ownership', Form 4 is a mandatory disclosure subject to fines and criminal prosecution for failure to file on time.
Like Forms 3 and 5, Form 4 is a two page document estimated to take less than 30 minutes to complete and is broken into 6 main parts:
-
Name and owner of the securities
-
Company name and ticker symbol
-
Date of Transaction reported
-
Shareholder's relationship to the company
-
Title of Security bought or sold (i.e., 'common stock', 'convertible preferred', 'employee stock options')
-
Transaction Date...Transaction Code (A = Acquired, D = Disposed)...the total amount of securities involved...and the total dollar amount value of the transaction.
Other common codes used when filing an SEC Form 4 are “S” (for ‘sale’) and “P” (for purchase).
See Section 16 Transaction and Ownership codes here >>
Click here to see a completed Form 4 >>
Transactions involving the conversion or exercise of derivative securities use code ‘M’.
In Summary: SEC Form 4 is a mandatory disclosure for all persons considered an "insider" of a publicly traded issuer. Anytime an "insider" buys, sells, or trades any of their holdings in the company, they must report that transaction to the SEC by filing a Form 4 within two days of the transaction.
Prepare and file your SEC Form 4 here >>
Note: Some transactions, including certain purchases made by an insider totaling less than $10,000 in a six-month time frame, do not need to be reported on a Form 4.
However...
Insiders Must File An Annual Statement
Of Company Holdings To The SEC
FORM 5: ANNUAL STATEMENT OF CHANGES IN BENEFICIAL
OWNERSHIP OF SECURITIES
Company insiders must file an annual statement of company holdings to the SEC, detailing their insider trading activity for the year using Form 5.
Essentially, it is a combination of Form 4 filings made during the fiscal year, and it must be filed within 45 days of the company's fiscal year end.
Form 5 is a mandatory filing subject to fines and criminal prosecution for failure to submit in a timely manner.
A two-page document, Form 5 is broken into six main parts and estimated to take an less than an hour to complete:
[Form 5, Page 1] [Form 5, Page 2]
-
Name and owner of the securities
-
Company name and ticker symbol
-
Date of Transaction(s) reported
-
Shareholder's relationship to the company
-
Title of Security bought or sold (i.e., 'common stock', 'convertible preferred', 'employee stock options')
-
Transaction Date...Transaction Code (A = Acquired, D = Disposed)...the total amount of securities involved...and the total dollar amount value of the transaction.
Click here to see all Section 16 Transaction codes >>
Click here to see a completed Form 5 >>
In Summary: SEC Form 5 is a mandatory annual filing for all persons considered an "insider" of a U.S. publicly traded issuer. Any transaction an "insider" makes with their company holdings during the fiscal year must be disclosed on a Form 5 and reported within 45 days of the company's year end.
If you need assistance filing a Form 5 click here >>
Note: All insider trading for the year must be reported on Form 5 by the beneficiary in question—within 45 days of the company's year end. Any trading activity not previously reported on Form 4 must be disclosed in a Form 5.
SEC Cracks Down On Late Section 16 Filers
Whatever you, do don't file your Section 16 reports late.
Ever since the SEC began to crack down on Directors and Officers for filing Section 16 reports late back in 2014 (or failing to file them at all), reports of enforcement on the matter have rarely been heard about since (unless, of course, your name is Elon Musk).
Although individuals are responsible for filing beneficial ownership reports in a timely manner, it's important to note that issuers can also be held accountable if their insiders are delinquent in filing forms 3, 4, and 5.
The filing of Section 16 Forms with the SEC requires access to the EDGAR reporting system, and it is common for companies to file the disclosures on behalf of their insiders.
Having said that, it's a good idea for new insiders to ask the issuer what the policies are in regards to the matter.
Of course, at PubCo Reporting, we have 19 years experience in preparing and filing Section 16 Forms 3, 4, and 5, and if you require assistance in the matter please feel free to reach out to us here.
REPORTING & CFO
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Article by
Nanuk is the managing partner PubCo Reporting. He specializes in public company accounting and EDGAR financial reporting. If you need help preparing and/or submitting regulatory compliance filings, you can reach out to Nanuk here.
