A form that must be filed with the U.S. Securities and Exchange Commission (SEC)
Ais a form that must be filed with the whenever an individual, company, or fund acquires a greater than 5% stake in another company. This is measured by on the market. Some examples of when a 13-D form would be required are:
Schedule 13D filings are commonly referred to as "beneficial ownership reports."
The term "beneficial owner" is defined under SEC rules. It includes anyone who shares voting or investment power directly or indirectly (the ability to sell the security).
When an individual or group acquires beneficial ownership of more than 5% of a voting class of a company's equity shares registered under the Securities Exchange Act, they are mandated to file a Schedule 13D with the SEC.
It reports mergers, acquisitions, and other information within ten days after purchasing. This schedule, filed with the SEC, is provided to the company that issued the securities and each exchange where the security acquired is traded.
Any 'material' changes in the information contained in the schedule require a prompt amendment.
It is often filed in connection with a.
Understanding Schedule 13D in detail
Investors may buy a significant number of shares in a publicly-held company for various reasons.
For example, investors attempting a hostile takeover, institutional investors who believe the stock is undervalued, or a dissident shareholder contemplating a proxy contest to replace management.
When an individual or group of individuals acquires a significant ownership stake in a company (more than 5% of a voting class of its publicly traded securities), the SEC requires that they disclose the purchase on a Schedule 13D form.
In some cases, they may be able to use a more straightforward form called Schedule 13G.
Once the disclosure has been filed, the publicly listed company and the stock exchange(s) in the US on which the company trades is/are notified of the new beneficial owner.
It intends to provide transparency to stakeholders regarding these new shareholders and why they have acquired a significant stake in the company.
It signifies to the public that a change of control, such as a proxy fight or a hostile takeover, might take place. This ensures current shareholders in the company can make informed investing and voting decisions.
The beneficial owner(s) must file Schedule 13D within ten days following the purchase of the shares. The obligation to file it lies with the new beneficial owner(s) because the target company might not know the individual or group behind the transaction.
Reading Schedule 13D
It requires that the beneficial owner provide relevant information about several items, including the following seven sections:
|1||Security and Issuer||This contains basic information regarding the class, type of security, and owner's contact information.|
|2||Identity and Background||This contains even more background about the owner, including past criminal activity (if any).|
|3||Source and Amount of Funds or Other Considerations||This lets investors know the source of the cash flows. The most important use is determining if a buyout is overleveraged, i.e., when most of the purchase is leveraged or borrowed capital.|
|4||Purpose of Transaction||This is the most important section. This section answers investors' questions. It answers whether the purchase was for acquisition, hostile takeover, proxy battle, because they believe it is undervalued, etc.|
|5||Interest in Securities of the Issuer||This states the purpose of the transaction, which should be explained better in section 4 (Purpose of Transaction).|
|6||Contracts, Arrangements, Understandings, or Relationships with Respect to Securities of the Issuer||This contains any unique relationships between the owner and the company. It is important to be sure that the buyer is genuine and legitimate and not a result of some other agreement or just a friend purchasing stock.|
|7||Material to be Filed as Exhibits||This includes any exhibits that may be filed along with the form, generally used for filing letters to management in case of a hostile takeover. These exhibits can also elaborate on the Purpose of the Transaction (Section 4).|
Instructions for compliance with SEC 13D
Under Sections 13(d) and 23 of the Securities Exchange Act of 1934, the Securities Exchange Commission is authorized to solicit the information required in this schedule by certain security holders of certain issuers.
Disclosure of information specified in the schedule is mandatory, except for I.R.S. identification numbers, the disclosure of which is voluntary.
The information will be used to determine and disclose the holdings of certain beneficial owners of particular equity securities.
Any information provided will be available for inspection by any public member as the statement will be made a matter of public records.
Because of the public nature of this information, the Commission can utilize it for various purposes, including referral to other governmental authorities or securities self-regulatory organizations for investigatory purposes.
Alternatively, it can be used for investigatory purposes concerning litigation involving the Federal securities laws or other criminals, civil, or regulatory statutes or provisions.
If furnished, it will assist the Commission in identifying security holders and, therefore, in promptly processing statements of beneficial ownership of securities.
Failure to disclose the information requested by this schedule, except for I.R.S. identification numbers, may result in civil or criminal action against the persons involved for violation of the Federal securities laws and rules promulgated thereunder.
The Tesla and SpaceX founder and C.E.O., Elon Reeve Musk, purchased significant equity shares in Twitter. The Schedule 13D filing with the S.E.C. was filed on April 20, 2022.
Below is a small portion of the 13D filing information for Twitter:
- Elon R. Musk is named as the reporting person (section 1).
- The number of shares purchased was 73,115,038 (section 7).
- The purchase represented a 9.1% ownership in Twitter, based on the at the time (section 13).
Title Page for the 13D Filing:
Elon R. Musk 13D Filing Example.
Details from the 13D Filing
At a Glance
- When individuals acquire 5% or more of a company's shares, they must report it to the .
- The question Schedule 13D asks is the purpose of the transaction, such as a merger or a takeover.
- If the beneficial owner's holdings change by 1% or more, they must amend their Schedule 13D.
The Securities and Exchange Commission () requires public corporations, certain company insiders, and broker-dealers to file periodical and other disclosures.
The Schedules 13D and 13G filings for publicly traded companies are available on the's EDGAR database.
The's EDGAR database presents Schedule 13D as "SC 13D–General statement of acquisition of beneficial ownership."
Anfiling is specifically for entities that acquire between 5% to 20% without the intention of a takeover or any other action that will materially impact the company's shares.
The Schedule 13G is not a harbinger of a takeover, as this form informs of a significant purchase by an entity with no intentions of a takeover.
If the investor is not passive, or the ownership stake is above 20%, the buyer would have to file a Schedule 13D.
It must be filed within 10 days of the purchase.
Occasionally, asset management companies like insuranceexceed the 5% merely because of the size of their AUM (Assets Under Management).
A partnership, corporation, limitedcompany, or tax-exempt charity having assets worth more than $5 million.
A general partner of the company selling the shares; any general partner of a general partner of that company; or anyofficer.
Electronic submission of registration statements and other paperwork is required for all businesses, domestic and international.
Investors can then view these registrations and other corporate papers via EDGAR. However, not every security issue is required to be registered with the.
Researched and authored by Rohan Kumar Singh | LinkedIn
Reviewed and edited by James Fazeli-Sinaki | LinkedIn
Uploaded and published by Omair Reza Laskar | LinkedIn
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