What Is SEC Form 3? Definition, When to File, and Requirements

What Is SEC Form 3?

SEC Form 3: Initial Statement of Beneficial Ownership of Securities is a document filed by a company insider or major shareholder with the Securities and Exchange Commission (SEC). 

It is an important step to help regulate insider trading, which is an individual’s buying or selling of a security based on material nonpublic information. Filing Form 3 helps disclose who these insiders are and track any suspicious behaviors.

According to the SEC, disclosure is mandatory. The information provided on the form is meant to disclose the holdings of directors, officers, and beneficial owners of registered companies. This information becomes public record and is, therefore, available for public inspection.

Key Takeaways

  • Form 3 is a document that a company insider or major shareholder must file with the SEC.
  • The information provided on the form is meant to disclose the holdings of directors, officers, and beneficial owners of registered companies and becomes public record.
  • The form must be filed with the SEC no later than 10 days after an insider becomes affiliated with a company.

Understanding SEC Form 3

The company insider must file Form 3 with the SEC no later than 10 days after becoming affiliated with a company.

The SEC lists the following who are required to file Form 3:

  • Any director or officer of an issuer with a class of equity securities 
  • A beneficial owner of greater than 10% of a class of equity securities
  • An officer, director, member of an advisory board, investment adviser, or affiliated person of an investment
  • An adviser or beneficial owner of more than 10% of any class of outstanding securities 
  • A trust, trustee, beneficiary, or settlor required to report 

The form must be filed for each company in which a person is an insider, regardless of whether or not the insider has an equity position in the company at that time. The filer is required to input their name, address, relationship to the reporting person, security name, and its ticker symbol.

There are two tables that also need to be filled out. Table I is for non-derivative securities that are beneficially owned, while Table II is for derivative securities beneficially owned including puts, calls, warrants, options, and convertible securities.

Other Related SEC Forms

Form 3 is also affiliated with SEC Forms 4 and 5, along with the Securities Exchange Act of 1934 (SEA). The SEA was created to govern securities transactions on the secondary market, following their initial issue, to ensure greater financial transparency and less fraud.

Form 4 is for changes in ownership. These changes must be reported to the SEC within two business days, although limited transactional categories are not subject to this reporting requirement. Insiders must file Form 5 to report any transactions that should have been reported earlier on Form 4 or were eligible for deferred reporting.

The SEC adopted new rules and amendments to Section 16 of the Securities Exchange Act in August 2002 in accordance with the provisions of Sarbanes-Oxley, which accelerated the deadline for filing many reports of insider ownership.

In addition to Forms 3, 4, and 5, several other important SEC forms exist. For example, companies must file Form 10-K, an annual report that contains a comprehensive summary of their performance. A 10-K generally includes five distinct sections:

  • Business: Details including the company’s main operations, products, and services.
  • Risk Factors: These outline any and all risks the company faces or could face in the future, typically listed in order of importance. Examples include the risk of defaulting on loans or the risk of new regulations that hinder progress.
  • Selected Financial Data: One of the most important sections for research analysts that detail specific financial information about the company over the last five years.
  • Management’s Discussion and Analysis of Financial Condition and Results of Operations: These are known as MD&A, which refers to qualitative information that accompanies the financial statements. This gives the company an opportunity to explain its business results from the previous fiscal year.
  • Financial Statements and Supplementary Data: This includes the company’s full audited financial statements, including the income statement, balance sheets, and statement of cash flows.

Together, all SEC filings are important sources of information for anyone considering an investment in a company.

What Triggers a Form 3 Filing?

The necessity for a Form 3 filing with the SEC arises when an individual becomes an insider in a firm. The individual must disclose their ownership of the company's securities. Form 3 has specific qualifications on what constitutes an insider and the purpose of the form is to prevent insider trading.

What Is the Difference Between SEC Form 3 and SEC Form 4?

SEC Form 3 is required to be filled out when an individual becomes an insider in a firm, according to specific SEC rules. The individual will need to disclose their ownership of company shares. SEC Form 4 needs to be filled out when there is any change in the ownership of a company's stock.

What Is the Penalty for Insider Trading?

When insider trading is done illegally, through the possession of material nonpublic information, the punishment can be civil or criminal, constituting fines and/or prison time.

Article Sources
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  1. U.S. Securities and Exchange Commission. "Form 3. Initial Statement of Beneficial Ownership of Securities," Page 2.

  2. U.S. Securities and Exchange Commission. "Form 3."

  3. U.S. Securities and Exchange Commission. "Form 4. Statement of Changes of Beneficial Ownership of Securities."

  4. U.S. Securities and Exchange Commission. "Final Rule: Ownership Reports and Trading by Officers, Directors, and Principal Security Holders."

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