Section 16 Reporting Requirements
Section 16 is a section of the Securities and Exchange Act of 1934 (the “Exchange Act”) that details the filing responsibilities of the insiders such as officers, directors, advisory board members and more than 10% beneficial owners of certain U.S. public companies once it’s shares of common stock are registered under the Exchange Act. While considering beneficial ownership all types of equity securities should be considered such as stock options, warrants, convertible securities, vesting of restricted stock or RSUs and others.
Section 16 filings are of three kinds:
Initial Statement of Beneficial Ownership of Securities (Form 3)
Statement of Changes of Beneficial Ownership of Securities (Form 4)
Annual Statement of Changes in Beneficial Ownership (Form 5)
Typically only form 3 and 4 are filed since form 5 is not required unless form 4 filings do not show all relevant changes in information.
These forms must be filed with the US SEC in electronic format via it’s online system Electronic Data Gathering Analysis and Retrieval System (EDGAR). The SEC also requires that these forms are posted on the company’s website by the end of the next business day after filing them with the SEC.
To electronically file with the SEC via EDGAR, the officers, directors and more than 10% beneficial owners need to file for their own Central Index Key (CIK), CIK Confirmation Code (CCC) and password codes by using SEC Form ID . It is imperative to use the insider’s CIK rather than the company’s CIK, so the readers can identify the insider filing the form
Insiders can apply for these by submitting a completed Form ID by FAX to the EDGAR Filer Support Office at (202) 504-2474.
Initial Statement of Beneficial Ownership of Securities (Form 3)
Form 3 is used to report the initial beneficial ownership by insiders.
This form must be filed with the US SEC within 10 calendar days after a director or officer joins the company or the beneficial ownership of insider exceeds 10% or by the effective date of the registration statement when the company goes public and registers it’s shares with the SEC.
For a pdf copy see Form 3 - INITIAL STATEMENT OF BENEFICIAL OWNERSHIP OF SECURITIES
Statement of Changes of Beneficial Ownership of Securities (Form 4)
For purposes of determining beneficial ownership (pecuniary interest) both direct and indirect interests must be considered. Insiders must file form 4 within two business days after an acquisition or disposition of shares where they have or share a pecuniary interest. These dispositions also include sale of stock under rule 10b5-1 plans. A failure to file Form 4 timely must be reported in proxy statements or 10-Ks and can lead to fines.
For a pdf copy see Form 4 - STATEMENT OF CHANGES IN BENEFICIAL OWNERSHIP
While form 3 is the initial filing, form 4 is the change in beneficial ownership.
Annual Statement of Changes in Beneficial Ownership of Securities (Form 5)
Form 5 is due within 45 days after the end of the calendar year. Form 5 should be used to report any transactions that should have been reported on Form 4 but were not reported due to:
deferred reporting rules specifically regarding acquisition or disposition of gift or inheritance and small acquisitions
reporting person conducted transactions during the year and failed to report the required information on form 4
For a pdf copy of the form and general instructions
Form 5 - ANNUAL STATEMENT OF CHANGES IN BENEFICIAL OWNERSHIP OF SECURITIES
Form 5 - General Instructions
For more information, visit the links below from U.S. Securities and Exchange Commission website:
Section 16 Frequently Asked Questions
Form ID Frequently Asked Questions
Quick Reference Guide EDGAR Access Codes
Arushi Bhandari is an MBA and a licensed CPA in the state of California. She has helped several Silicon Valley companies at different stages with their accounting and tax related issues. Her publications eBooks - STARTUP Financing, Equity and Tax and Introduction to Equity Compensation are available on Apple iBookstore, Amazon Kindle and Google Play. She maintains a public blog at www.startuptaxaccounting.com and has guest blogged at different startup platforms such as The Startup Garage and Belmont Acquisitions.
DISCLAIMER: The information provided is intended to educate the readers and a more definite answer should be based on a consultation with a lawyer or CPA.It should not be relied upon as legal advise because the information might be incomplete and answers could change depending upon circumstances and if all facts were known.
