Do I need to escheat shares and certificates for my company to the states?

Company leaders have a number of financial and administrative responsibilities, and escheatment often gets overlooked. It’s not as frequently discussed as tax or compliance matters, but failing to understand and act upon it can lead to significant consequences. 

As business operations become more intricate and as shareholders expand in numbers, understanding escheatment and the rules associated with it becomes essential. Now, let’s dive into what escheatment means for your company, especially if you deal with shares and certificates.

A Definition: What Is Escheatment?

Escheatment is a centuries-old legal concept that has since been integrated into U.S. state laws. At its core, escheatment refers to the process by which unclaimed or abandoned assets are transferred to the state government. Essentially, if an asset, such as a stock certificate, a dividend check, or a dormant bank account, remains unclaimed for a set period, the state steps in to take custody of it. The idea is not to deprive rightful owners of their assets but to safeguard these assets until they can be claimed. The rules and regulations surrounding escheatment can be confusing, which is why you need to reach out to an expert, like Colonial Stock Transfer.

What Is Required To Be Escheated?

Escheatment touches various assets, especially in businesses handling shares and certificates. One main area of focus is unclaimed dividends or interest. When these dividends from shares remain uncashed or unnoticed for a long stretch, they risk being seen as abandoned. Stock certificates that aren’t delivered or cashed in are also on the escheatment radar.

But it doesn’t stop with physical paperwork. The digital world isn’t exempt. Electronic shares lurking in dormant shareholder accounts can be flagged as unclaimed. It’s crucial for companies to be vigilant about these assets to avoid unforeseen complications. Remember that this is not something that you need to deal with on your own. There are experts who can help you with the process and make sure nothing is overlooked. 

When Am I Required To Escheat?

The timeline for escheatment isn’t universal. Each state in the U.S. has its own regulations determining the dormancy period after which assets are deemed “unclaimed” or “abandoned.” For many states, this period ranges between three to five years for financial assets. However, the nuances of each state’s laws can complicate matters. Keep in mind that the timeline might also vary depending on the asset itself. 

For instance, some states might start the dormancy clock from the last recorded activity, while others might begin from the last communication with the shareholder. The state might start the clock for stocks and bonds at three years, but they might start the clock for bank accounts at five years. It’s crucial to be familiar with the specific rules of the state in which your company operates or where your shareholders reside.

What Happens If I Do Not Escheat on Time?

As an issuer of your company’s stock, neglecting your escheatment responsibilities can lead to a host of complications. If you do not follow the processes of your state, there are a variety of consequences you might face, including 

  • Penalties: States may impose monetary penalties for failing to report or escheat unclaimed property in a timely manner.
  • Interest Charges: Apart from penalties, states can also charge interest on the value of the unclaimed property from the date it should have been escheated.
  • Audits: Many states actively audit companies to ensure escheatment compliance. Such audits can be exhaustive and might look back many years.
  • Reputation Risk: Continuous non-compliance can tarnish a company’s reputation and erode shareholder trust.
  • Operational Challenges: Addressing escheatment only when faced with an audit or legal action can cause operational disruptions and unnecessary stress. Being proactive and understanding your escheatment responsibilities will help you avoid these pitfalls.

If you would like to avoid these issues, you need to reach out to an expert team that can help you. 

Escheatment might seem overwhelming, especially when you factor in the varying regulations across states. However, with the right guidance, you can navigate this process seamlessly. At Colonial Stock Transfer, we pride ourselves on offering expert guidance on escheatment, ensuring that your company remains compliant while also upholding the rights and interests of your shareholders. With decades of experience in the field, we provide tailored solutions that resonate with your unique needs. Remember, in the realm of corporate responsibilities, staying informed and proactive is paramount. Let us assist you in mastering your escheatment obligations.

At Colonial Stock Transfer, we have the training and experience necessary to act as your guide, so reach out to us today to schedule a consultation. Reach out to our team today and ensure a compliant and streamlined process for your company.

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