SEC Section 16 filings target a particular subsection of corporate stakeholders in the United States. Specifically, anyone who is considered a beneficial owner of a company must file these forms. Discover who needs to file, what the forms require and Section 16 filings solutions.
Section 16 is a subsection of The Securities Exchange Act. The section specifies so-called beneficial owners to publicly disclose their beneficial relationship with a company by filing a Section 16 form. This regulation is intended to govern the reporting of insider ownership and insider transactions to promote transparency and prevent insider trading. It applies to insiders including officers, directors, and 10%+ beneficial owners.
Section 16 forms refer to three different forms known as Form 3, Form 4 and Form 5, as well as their timely disclosure through EDGAR. These SEC filings are meant to be public and searchable via EDGAR. Here's what each of these forms includes:
Section 16 Forms Explained (Forms 3, 4, and 5)
SEC Form 3
Form 3 is an initial statement of beneficial ownership filed by new directors, officers or shareholders. It's also filed after an IPO. Think of it as an initial public announcement. Until you have filed Form 3, you do not need to file the other forms. It is required within 10 days of becoming an officer, director, or 10%+ owner.
SEC Form 4
Form 4 must be filed by beneficial owners, officers or directors when their holdings change materially. For example, if an officer receives a 5% increase in ownership stake, Form 4 should be filed. The deadline for filing this form is two business days after the transaction.
SEC Form 5
Form 5 must be filed by beneficial owners, officers or directors to report any transactions not reported on Form 4. This is an annual catch-all for any unreported or exempt transactions, and must be filed within 45 days after the end of the fiscal year.
Form 5 is similar to Form 4, so it can be confusing to know which one to file.
Use Form 5:
- To report smaller transactions not reported on Form 4
- For gifts or shares that were not reported earlier but could have been
- As a catchall form if the deadline for a Form 4 were missed
Who Needs to File Section 16 Forms?
Anyone who owns 10% or more of a company, or is a named director or officer of the company, must file this form. That sounds straightforward. However, you yourself do not have to physically hold equity in a company to be subject to Section 16 requirements.
For example, if you're married to someone who is considered a beneficial owner, you're considered to be covered by Section 16 as well. If you do not own 10% on your own but hold 10% or greater investment through a group or entity, Section 16 still applies to you as an individual.
One of the most common compliance mistakes many make is misinterpreting beneficial ownership. This is why it’s important to have expert guidance to ensure nothing is overlooked.
Section 16 Filing Requirements
SEC filing forms, including Section 16 forms, are using the SEC's electronic filing system, nicknamed EDGAR.
The filing deadlines for these forms are as follows:
Form 3 must be filed within 10 days of a qualifying transaction, such as an IPO.
Form 4 must be filed within two business days of an eligible transaction.
Form 5 is required within 45 days of the company's fiscal year ending.
Some of the most common mistakes filers make include:
Incorrect transaction codes
Misreporting derivative securities
Omitting footnotes or explanations
Delinquent filing
Section 16 Compliance Challenges
With rapid reporting deadlines, multiple transaction types, and complex derivative reporting, it’s no wonder so many public companies struggle to keep up with their Section 16 compliance. Some of the most effective strategies for mitigating these challenges include ensuring audit trails and internal workflow visibility, tracking equity grants and vesting events, and maintaining accurate beneficial ownership data. The right software platform can make all of this much easier.
How DFIN Supports Accurate Section 16 Filing
At DFIN, we have resources that ensure companies can meet SEC Section 16 reporting requirements, including those with strict deadlines like Section 16. Our SEC reporting software, ActiveDisclosure℠, makes filling forms easier and faster. ActiveDisclosure℠ allows you to integrate existing data in a guided workflow format that walks you through Forms 3, 4, and 5 step by step. It's an all-in-one filing solution for EDGAR compliance designed to make the process simple and straightforward. Discover why companies trust our financial reporting solutions when it comes to Section 16 filings.
