A Transfer Agent’s Role in an IPO

Are you planning on taking your company public? If so, there are several steps you need to follow during your initial public offering. You might also be wondering if you need to hire a transfer agent. A transfer agent plays an essential role in any IPO. Taking your company public comes with new regulations and laws you need to follow. That is where a transfer agent can be helpful.

What Does a Transfer Agent Do During an IPO?

You will be selling shares of your company to the public for the first time in an effort to raise capital. Some of the most common reasons why a company might conduct an IPO include:

  • The company can raise capital to purchase inventory, hire staff, and conduct research and development.
  • Having extra capital can make it easier to conduct mergers and acquisitions.
  • Companies that go public often have an easier time getting favorable borrowing terms from creditors because of the increased transparency that comes with going public.
  • Businesses that go public have increased exposure and prestige, helping to craft a favorable public image that can drive revenue growth and profit margins.

While every company has a slightly different set of reasons for going public, a transfer agent can always help with this process. A transfer agent can help with an IPO by:

  • Keeping a meticulous record of shares issued and outstanding
  • Keeping track of shareholder account information
  • Handling any requests that come from shareholders and providing them with the necessary support
  • Efficiently executing any transfers of ownership
  • Distributing dividends to eligible shareholders
  • Reporting all tax information
  • Issuing certificates of representation to those who purchase shares

A transfer agent is one of the most important partners during the IPO process.

What Are the Steps Involved in an IPO?

If you want to take your company public, there are several steps you need to follow. Some of the most important steps of an IPO include:

1. Review the Various Proposals

The first step is to compile proposals related to the IPO. Underwriters and financial professionals will present valuations and proposals discussing their potential services. Underwriters might talk about various securities you can issue, what offering price you should set for your shares, and the number of shares you can issue. Underwriters will also let you know how long they think you should spend marketing your initial public offering before you actually list your shares for purchase on the stock market.

2. Choose an Underwriter

After you review the various proposals, you need to select an underwriter. You should think about the reputation of the underwriter, how much money you think you can make, and the overall goals of your IPO. That way, you can choose the best underwriter to help you. After you have chosen your underwriter, you will formally agree to your set of terms through an underwriting agreement.

3. Assemble Your Team

Once you have chosen an underwriter, it is time for you to assemble your team. Some of the most important members of your IPO team include certified public accountants, lawyers, and experts on the SEC. Of course, you should also work with a transfer agent who can help you during this process.

4. Compile Your Documents

You will have a lot of documents to put together. For example, the most important IPO filing document is the S-1 Registration Statement. This document has two parts. The first is called the prospectus and the second is the privately-held filing information. You will need to include preliminary information about the expected date of your filing. It is not unusual for companies to revise the date of the IPO, but you need to make sure you revise the prospectus as well.

5. Market the IPO

Once you have put together all of your documents, it is time for you to market your IPO. You need to let the public know that you will be offering shares in your company. You will also need to explain to the public why they should buy shares in your company. Your underwriters will need to keep you in the loop as the marketing plan unfolds. Based on the response of the public, you may want to change the date of the IPO or your purchase price.

6. Form a Board

Because you are taking the company public, you will have additional requirements to meet. You should form a board of directors that can make sure you report all auditable financial and accounting information each quarter. That way, you can reduce your regulatory risk.

7. Issue Your Shares

On the date of your IPO, you will issue your shares. Capital collected from the issuance of the shares to your shareholders will be received as cash. You will need to record it as stockholder equity on your balance sheet. Then, the value of that balance sheet is dependent on the equity per share valuation of all of your stockholders.

8. Complete the IPO

Once the IPO is done, Underwriters might have a specified time frame to purchase an additional amount of shares following the IPO date. Furthermore, investors might be subject to a quiet period instituted by the SEC once the process is done.

This is the general process you should expect if you want to take your company public. Clearly, there is a lot for you to do, so you need to work with a professional who can guide you through the process. This is where a transfer agent can assist you.

The Benefits of Working with a Transfer Agent

There are several significant benefits that come from working with a transfer agent to handle your IPO. These include:

  • Shareholder Information: It is the responsibility of the company to provide potential shareholders with accurate information related to the business. Even though there are some corporations that have teams that do this on their own, it is usually better to rely on a transfer agent who has experience in this area. A transfer agent to make sure the right information is being shared with shareholders, allowing for the successful execution of your IPO.
  • Prevent Mistakes: A transfer agent can also make sure nothing falls through the cracks during an IPO. If you are taking your company public, you might be going through this process for the first time. A transfer agent has been through the process before. Your transfer agent knows some of the most common mistakes companies make during the process and can make sure you avoid them. That way, you can take your company public without overlooking important steps.
  • Save Time: You have a lot to do on a daily basis, and taking a company public and be a lot of additional work. You still have a company to run, and you need to keep up with your other obligations. A transfer agent can help you save time during the process, taking a lot of complicated tasks off your hands.
  • Reduce Regulatory Liability: A transfer agent can also help you reduce your regulatory liability. As a company, you have a fiduciary responsibility to your shareholders to make sure that all transactions are safeguarded, account balances are accurate, and investor records are protected. A transfer agent can take on this responsibility for you, looking out for the best interests of your shareholders.

For all of these reasons, you should work with a transfer agent who can help you during your IPO. A transfer agent can help you put your company in the best position possible to be successful as your company has its initial public offering.

Appointment of a Transfer Agent for Your IPO

If you are looking for a transfer agent for your IPO, the first tithing you need to do is complete the appointment documents. These documents will spell out the role and responsibilities of your transfer agent. Your agent may request copies of certain documents, such as your certificate of Incorporation. Your company’s board of directors will also need to approve the appointment of your chosen transfer agent.

In addition, you will need to provide your transfer agent with a ledger of shareholders. Your transfer agent will be responsible for maintaining the shareholder records of your business. Then, your transfer agent will load the information on your shareholders into a system to ensure it is accurate and updated.

Preparation for Securities Listing and IPO

As you get closer to the date of the IPO, you will need to obtain a Committee on Uniform Security Identification Procedures (CUSIP) number. Your transfer agent can help you with this. This is an identifier for the specific shares you will be offering during the IPO.

You will also need to obtain eligibility for your security from the Depository Trust and Clearing Corporation (DTCC), which has several important elements related to your initial public offering. You will also need your transfer agent to help you obtain acceptance into the:

  • Fast Automated Securities Transfer Program (FAST) System and the Deposit and Withdrawal at Custodian (DWAC) System: You need to work with this system because it is required by NASDAQ and NYSE and you won’t have to worry about dealing with physical certificates, which makes it much easier for shareholders to purchase shares of your company. This also saves time as you try to issue new securities. If you make it easier for people to purchase shares in your company, you will have more success with your IPO. You need to make sure the underwriter applies for eligibility in the program.
  • Direct Registration System (DRS): You need to make your company as attractive as possible to potential shareholders. You might have people who want to purchase shares in your company without holding them in a brokerage account. In this case, you need to give them the option to hold them in a DRS account with the help of a transfer agent. If you give your shareholders more flexibility in how they hold their securities, they are more likely to purchase more shares in your company.

Even though this requires more paperwork, your transfer agent can help you with all of these issues, making sure that you take care of these clerical tasks before the date of your IPO. This is important for maximizing the interest in the shares you issue because it makes it easier for people to buy shares of your company and it makes it easier for you to collect the proceeds from your IPO.

Closing the Initial Public Offering from the Transfer Agent’s Perspective

The transfer agent can help with the closing process as well. Typically, this is based on the regulations from the SEC regarding trading dates, plus two more days for settlement delivery, usually called T+2. Prior to 2017, the standard was T+3. The underwriter will need to coordinate with the DTCC to confirm that the free-trading securities have been delivered by the transfer agent. The transfer agent will be responsible for working with the company to confirm the securities being delivered and might need to clear this with the company’s general counsel as well to ensure all registration requirements have been met.

Once all the requirements have been met, the transfer agent and underwriter will work with the DTCC one more time to ensure the security amounts and dollar figures are correct, along with the CUSIP number. Then, the shares will be electronically delivered. The transfer agent will deliver all securities to the underwriter, which at time, the company will confirm that they have received the funds.

At this time, the IPO is closed. There might be a mandatory waiting period before the shares can be traded again unrestricted. The transfer agent can also coordinate with new shareholders, making sure they have all the necessary information they need to trade the securities.

After Closing the Offering

Taking a company public will increase the size of the shareholder base significantly. The transfer agent will be responsible for helping the company manage its large number of shareholders. Your transfer agent can be your first line of defense for any questions or concerns from shareholders while helping you stay in compliance with all SEC regulations. A transfer agent can also help you set up annual meetings and conferences with shareholders if votes need to occur related to specific actions taken by the company.

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