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Beneficial Ownership Reports: Schedules 13D and 13G

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The Securities and Exchange Act of 1934 (the “Exchange Act”), governs the secondary trading of securities on U.S. markets. Sections 13(d) and 13(g) of the Exchange Act apply to investors who acquire large amounts of equity securities in a company. Those investors must disclose information about their beneficial ownership interest. They must disclose to the Securities and Exchange Commission (SEC) on a Schedule 13D or 13G, depending on the circumstances.

Schedule 13D and Schedule 13G report a significant ownership stake in a company’s securities. Individuals or entities can file them. The information is publicly available on the SEC website. A Schedule 13D applies to persons who acquire beneficial ownership of over 5% of any class of equity securities of the company. They must disclose within 10 days of acquisition. A Schedule 13G is a short form version of the Schedule 13D. Certain categories of investors can use the short form.

Under Section 13(d) of the Exchange Act, the beneficial owner of over 5% of a company’s securities must provide certain disclosures to the SEC. The beneficial ownership information includes the background, identity, residence, and citizenship of the beneficial owner. Additionally, person must disclose the source and amount of the funds. Further disclosures are of purpose of the transaction and how many shares the person beneficially owns.

Beneficial Ownership Schedule 13D

Sections of the Schedule 13D

Beneficial ownership of 5% or more of a company’s securities will file a Schedule 13D with the SEC on a standardized form. There are seven main sections on the Schedule 13D form:

  1. Security and Issuer
  2. Identity and Background
  3. Source and Amount of Funds or Other Consideration
  4. Purpose of Transaction
  5. Interest in Securities of the Issuer
  6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer
  7. Materials to be Filed as Exhibits

Sections of the Schedule 13G

A Schedule 13G is a short form version of the Schedule 13D. Like a Schedule 13D, a person or entity must file a Schedule 13G within 10 days of acquiring beneficial ownership of over 5% of any class of a company’s equity securities. However, if the person falls within an exemption or exclusion from Section 13(d) of the Exchange Act, they can use the shorter Schedule 13G.

There are three main beneficial ownership investor categories that qualify for an exemption and permit filing with a Schedule 13G:

  • Under Rule 13(d)-1(b), a “qualified institutional investor” must file a Schedule 13G within 45 days of the end of the calendar year in which the person acquires greater than 5% ownership of a class of securities.
  • Per Rule 13d-1(c), a “passive investor” must file a Schedule 13G within 10 days of acquiring greater than 5% ownership of a class of securities.
  • Under Rule 13d-1(d), an “exempt investor” must file a Schedule 13G within 45 days of the end of the calendar year in which the person acquires greater than 5% ownership of a class of securities.

Beneficial Ownership Disclosure

The standardized Schedule 13G form filed with the SEC contains 10 main sections of disclosure.

  1. Name of Issuer
  2. Name of Person Filing
  3. If this statement is filed pursuant to Section 13d-1(b) or 13d-2(b) or (c), the the filer must check whether the person filing holds a beneficial interest as a broker or dealer, bank, insurance company, investment company, investment adviser, employee benefit plan, parent holding company, savings association, church plan or a group per Section 13(d)-1(b)(1)(ii)(J)
  4. Ownership
  5. Five Percent or by 5% or Less of a Class
  6. Ownership of More than Five Percent on Behalf of Another Person
  7. Identification and Classification of the Subsidiary Which Acquired the Security Being Reported on by the Parent Holding Company
  8. Identification and Classification of Members of the Group
  9. Notice of Dissolution of Group
  10. Certification

Beneficial Ownership

The concept of beneficial ownership is meant to capture both direct and indirect ownership of a company’s securities. It traces the ownership of the securities back to the ultimate owner or controller of the shares. Under Rule 13d-3 of the Exchange Act, a person is considered a “beneficial owner” if the person either has voting power or investment power. Investment power includes the power to dispose or direct the disposition of the securities.

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