In the context of Section 12(g) of the Securities Exchange Act of 1934, a transfer agent is important because this section requires companies with more than a certain number of shareholders (specifically, 500 shareholders of record and $10 million in assets) to register with the Securities and Exchange Commission (SEC) and comply with certain reporting requirements, similar to those for publicly traded companies.
Transfer agents play a crucial role in maintaining accurate records of a company's shareholders. When a company reaches the threshold specified in Section 12(g), it must engage a transfer agent to manage its securities transactions, including issuing and canceling stock certificates, processing dividends, and handling shareholder inquiries. The transfer agent helps ensure compliance with SEC regulations regarding shareholder communications, record-keeping, and other requirements.
Further, companies choose to use transfer agents to maintain organized and comprehensive shareholder records. By outsourcing this function to a transfer agent, companies can focus on their core operations while ensuring that all securities-related transactions are accurately processed. Transfer agents have reporting and industry knowledge that is key to executing securities transactions and maintaining an accurate record of shareholders.
If a company is not very active or has very few shareholders, shareholder maintenance can be handled by an employee or the company’s legal counsel, however, this can create a burden on those responsible within the company. As the company continues to grow and has more shareholders, this can be particularly difficult to continue to manage in-house.