4.2.8.9. Insider Beneficial Ownership Reports: Forms 3, 4, and 5
Section 16 of the Exchange Act requires certain corporate insiders of public companies to file statements with the SEC disclosing their ownership interests. These insiders are defined to be directors, officers, and any principal stockholders of public companies who are the “beneficial owners” of more than 10% of any class of the company’s registered equity securities. (A beneficial owner does not include an entity that holds securities for the benefit of a third party or in customer accounts, such as a broker-dealer, bank, mutual fund company, etc.)
Three different forms are used to disclose insider ownership interests. This trio of forms provides information about a company’s most significant shareholders and their trading behavior.
• Form 3 is the initial statement of beneficial ownership. An insider must file Form 3 within 10 days of becoming a director, officer, or more than 10% beneficial owner of the issuer. If the issuer is registering securities for the first time (e.g., as part of an initial public offering), the director, officer, or beneficial owner must file Form 3 no later than the effective date of the registration statement.
• Form 4 discloses changes in the beneficial ownership of securities. The insider must file Form 4 within two business days after any transaction that results in a change of the insider’s business ownership. This means that when an insider buys or sells securities he must file a Form 4.
• Form 5 is an annual statement of changes in beneficial ownership that investors use to report transactions that should have been reported on Form 3 or 4. Form 5 must be filed within 45 days after the end of the company’s fiscal year.
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