Series 79: 1.1.6. Beneficial Ownership Reports Of Affiliates: Forms 3, 4, And 5

1.1.6. Beneficial Ownership Reports of Affiliates: Forms 3, 4, and 5

Related to the concept of beneficial ownership is the concept of an affiliate. This is a good definition to know, because we’ll be coming back to it in several different contexts. Generally speaking:

• For natural persons. An individual is an affiliate of a company if the individual “controls” the company. This doesn’t mean complete control, but rather the power to direct company decisions. Officers, directors, and beneficial owners of more than 10% of any class of the company’s stock are considered affiliates. Individuals who are affiliates are also known as insiders or control persons.

• For entities. Two companies are affiliates of each other if one of them controls the other, or if they are under common control. Being under common control means that the same person has control over both companies. For instance, two companies may have the same parent company. Control means the same thing as it does with regard to individuals. For most purposes, 10% ownership is enough for one company to be said to have control over another. Companies that are affiliates are also known as control persons.

The Exchange Act requires affiliates of public companies to disclose how much of the company they own by filing Forms 3, 4, and 5 with the SEC. This trio of forms provides information about a company’s most significant shareholders and their trading behavior.

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