What Is SEC Form 4: Statement of Changes in Beneficial Ownership?

SEC Form 4: Statement of Changes in Beneficial Ownership is a document that must be filed with the Securities and Exchange Commission (SEC) whenever there is a material change in the holdings of company insiders. Insiders consist of directors and officers of the company, as well as any shareholders, owning 10% or more of the company's outstanding stock. The forms ask about the reporting person's relationship to the company and about purchases and sales of such equity shares.

The filing of Form 4 relates to Sections 16(a) and 23(a) of the Securities Exchange Act of 1934, as well as Sections 30(h) and 38 of the Investment Company Act of 1940. Disclosure of information required on Form 4 is mandatory and becomes public record upon filing.

Key Takeaways

  • Form 4 must be filed with the Securities and Exchange Commission whenever there is a material change in the holdings of company insiders.
  • If a party fails to disclose required information on a Form 4, civil or criminal actions could result.
  • It must be filed within two business days starting from the end of the day the material transaction occurred.

Understanding SEC Form 4: Statement of Changes in Beneficial Ownership

There are multiple SEC forms that are associated with the ownership of stocks or securities for publicly-traded companies. SEC Form 4 is one of three forms that is usually required by the SEC.

Form 3

Individuals file Form 3 when they first acquire a stock and are registering the securities for the first time. The form must be filed within 10 days of the individual becoming an officer, director, or beneficial owner at the company.

Form 4

Form 4 is required to be filed by a company or the individual at the company when there is a change in the holdings of company insiders. Form 4 must be filed with the SEC within two days of the transaction. Form 4 is a two-page document, which covers any buy-and-sell orders, as well as the exercise of company stock options.

Options are contracts that give the holder the right, but not the obligation to buy or sell a stock at a certain price, and by a specific date. Options are often awarded to executives and directors of companies as part of the employee incentive plan. Typically, the options can be cashed out or redeemed after a predetermined holding period has expired.

Form 5

Form 5 is filed if a person conducted a trade of the company's stock but failed to report it via Form 4. Form 5 allows the individual 45 days following the close of the company's fiscal year.

The SEC is able to use the information in SEC Form 4 when referring a case to other governmental authorities and self-regulatory organizations (SROs). If a party fails to disclose the required information on Form 4, civil or criminal actions could result.

Forms Related to SEC Form 4

Several other forms are critical to maintaining transparency and recording the actions of public company executives, officers, and directors. These include the company's annual financial report, which is filed via a 10-K and the quarterly financial report filed via a 10-Q.

If a company is issuing stock for the first time, they must file Form S-1, and if any amendments must be made, they file Form S-1A. The 8-K is filed when there are unscheduled material events or corporate changes.

The SEC has the capacity to use information disclosed on Form 4 in investigations or litigation involving federal securities laws, in addition to other civil, criminal, or regulatory statutes or provisions.

How to File SEC Form 4: Statement of Changes in Beneficial Ownership

In general, a party must file Form 4 electronically via the Commission’s Electronic Data Gathering Analysis and Retrieval System (EDGAR). Exceptions can occur during hardship. It is mandatory within two business days starting from the end of the day the material transaction occurred.

Here is a link to a downloadable SEC Form 4: Statement of Changes in Beneficial Ownership.

Real-World Example of SEC Form 4

In February 2020, Elon Musk, the Chief Executive Officer (CEO) of the publicly-traded company Tesla Inc. (TSLA), filed SEC Form 4 as an individual. Below is a copy of the Form 4 as well as the details of the transaction, which was obtained via the SEC's EDGAR system.

  • Section 1 contains the reporting person's name, which was Elon Musk, and the address for the company.
  • Section 2 has the company name of Tesla Inc.
  • Section 3 contains the transaction date of February 14, 2020.

Table 1

  • Section 1 contains the type of security, which was common stock.
  • Section 4 contains the number of shares, the action taken (whether the shares were acquired or disposed of), and the price at which the shares were bought or sold.

The SEC Form 4 shows that Elon Musk purchased 13,037 shares at a price of $767, which left Mr. Musk with a total number of shares owned of 34,098,597 following the purchase (section 5).

SEC Form 4 Example Elon Musk CEO of Tesla Inc.
SEC Form 4 Example Elon Musk CEO of Tesla Inc. Investopedia