What is the 'Schedule 13D'

Schedule 13D is a form that must be filed with the SEC under Rule 13D. The form is required when a person or group acquires more than 5% of any class of a company's shares. This information must be disclosed within 10 days of the transaction. Rule 13D requires the beneficial owner to also disclose any other person, who has voting power or the power to sell the security.

Schedule 13D is known as the beneficial ownership report.

BREAKING DOWN 'Schedule 13D'

Investors, for a number of reasons, may choose to purchase a large number of shares in a publicly held company. Activist investors attempting a hostile takeover, institutional investors who believe the stock may be undervalued, a firm that acquires a publicly traded company, and a dissident contemplating a proxy contest are all examples of investors that may buy a large interest in a company. When a person or group of persons acquire a significant ownership stake in a company, characterized by more than 5% of a voting class of publicly traded securities in a company, the Securities and Exchange Commission (SEC) requires the purchase to be disclosed through a form called Schedule 13D.

Once the disclosure has been filed with the SEC, the public company and the exchange(s) on which the company trades are notified of the new beneficial owner. Schedule 13D is a disclosure form that provides transparency to the public on who the large shareholders are and why they have taken a large percentage interest in the company. The form signifies to the public that a change of control, such as a hostile takeover or proxy fight, is about to take place. By disclosing this information, current shareholders in the company can make informed investing and voting decisions.

The obligation to file Schedule 13D lies with the beneficial owner – any person who directly or indirectly shares voting or investment power. This is because the target company might not know the person or people behind the huge stake in the firm. The beneficial owner must disclose his or her investment transaction through Schedule 13D within 10 days. Regardless of how high the accumulated stake is or how contentious the relationship between the shareholder and the company is, the shareholder must comply with the SEC in providing timely and accurate information about the acquired interests in the company.

Sections of Schedule 13D

Schedule 13D has seven sections, ranging from the contact information of the beneficial owner to the reason for purchasing more than 5% of securities in the publicly held company. The seven sections are:

  1. Item 1: Security Issuer. The name and address of the company, including the type of security purchased, are to be included in this section.
  2. Item 2: Identity and Background. This section includes information about the individual or about the directors, controlling persons, and executive officers of the acquiring company.

  3. Item 3: Source and Amount of Funds or Other Consideration. This section notes where the money is coming from and how the shares were acquired should be listed here. For example, the source of funds could be working capital or leverage, and the securities could have been obtained through privately negotiated back-to-back put and call options transactions.

  4. Item 4: Purpose of Transaction. This is the most important section of Schedule 13D as it prepares investors for any change of control, looming on the horizon. The beneficial owner may indicate that the purpose of conducting the transaction was because s/he believed the shares were undervalued in the marketplace and, hence, represented an attractive investment opportunity.

  5. Item 5: Interest in Securities of the Issuer. The number of shares acquired, and what this number represents as a percentage of the issuer’s outstanding shares, are disclosed under this section.

  6. Item 6: Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. The beneficial owner should include any agreement or relationship s/he has with any person, with respect to the target company’s securities. For example, the person filing the disclosure report could state that s/he has a lock-up agreement with the issuer to not dispose of the acquired shares for a period of five years.

  7. Item 7: Material to be Filed as Exhibits. These include exhibits, such as letters to management signaling a hostage takeover.

Any material changes to information filed in Schedule 13D must be disclosed to the SEC. A material change includes at least 1% increase or decrease in the percentage of the class of securities held by the investor. If a beneficial owner holds 7.5% of a class of securities in a company, he would be required to reflect a material change in the 13D amendment form if his percentage interest decreases or increases by at least 1%. If his interest falls below 5%, he must make one final amendment, notifying the SEC of the change in his percent holdings.

You can find most companies' 13D filings in the SEC's EDGAR database. The database presents Form 13D as “SC 13D – General statement of acquisition of beneficial ownership.” Any amended form is denoted as SC 13D/A.

  1. Schedule 13G

    Schedule 13G is an SEC form similar to Schedule 13D used to report ...
  2. Beneficial Owner

    A beneficial owner is the true owner of an asset or security ...
  3. Form 3

    Form 3 is a document that a company insider or major shareholder ...
  4. Form 4

    Form 4 is a document that must be filed with the Securities and ...
  5. Form 144

    Form 144 is filed with the Securities and Exchange Commission ...
  6. SEC Form 1

    SEC Form 1 is an application for, or amendments to, registration ...
Related Articles
  1. Investing

    Digging In To 13D Disclosures

    This document can provide important clues about a company and its stock.
  2. Investing

    Activist Hedge Funds: Follow the Trail to Profit

    Learn to profit by following the lead of hedge funds.
  3. Taxes

    How A Company Files With The SEC

    Filing with the SEC is not as complicated as you might thing -- just be meticulous about following the steps.
  4. Investing

    Understanding The Top SEC filing forms

    It's easier than ever to keep track of your SEC filing status online.
  5. Insights

    Understanding the SEC

    The SEC's triple mandate of investor protection, maintenance of orderly markets and facilitation of capital formation makes it a vital player in capital markets.
  6. Investing

    Data Mining For Investors

    Being an informed investor is extremely important, but where and how do you get the data for your research?
  7. Investing

    How To Decode A Company's Earnings Reports

    Read between the lines to decipher a company's true financial condition.
  8. Investing

    13Fs: Activist Funds Cleaned Up in Q1

    Some select positions made some hedge fund activist investors big winners early in 2018.
  9. Managing Wealth

    Keeping Control of Your Business After the IPO

    Taking a company public doesn't mean founders must completely give up calling the shots. Before the IPO, consider these tactics to keep control after it.
  10. Insights

    The SEC: A Brief History Of Regulation

    The SEC has continued to make the market a safer place and to learn from and adapt to new scandals and crises.
  1. What is the significance of a Schedule 13D?

    A Schedule 13D is significant because it provides investors with useful information on everything an investor could want ... Read Answer >>
  2. Where can I find a company's annual report and its SEC filings?

    Thanks to the Internet, finding financial reports is easier than ever. Nowadays, every reputable company has an investor ... Read Answer >>
  3. How company stocks move during an acquisition

    During an acquisition, there's a short-term impact on the stock prices of both companies. Typically, the target company's ... Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  3. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  4. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  5. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center