What Is SEC Schedule 13D?

SEC Schedule 13D is a form that the U.S. Securities and Exchange Commission (SEC) requires certain shareholders to file within 10 days of purchasing a stock. Investors that qualify for Schedule 13D are beneficial owners of more than 5% of a company’s outstanding voting stock. Schedule 13D is sometimes known as the beneficial ownership report and is mandated by a 1968 amendment to the Securities Exchange Act of 1934.

Key Takeaways

  • SEC Schedule 13 is a form required for certain shareholders by the Securities and Exchange Commission (SEC).
  • Beneficial owners of more than 5% of a company's outstanding voting stock are required to file Schedule 13D within 10 days of purchasing the stock.
  • Certain investors that are exempt from filing Schedule 13D are required to file a condensed form: Schedule 13G.
  • Schedule 13D was created in response to an increase in tender offers related to corporate takeovers in the 1960s.
  • Schedule 13D serves as an advance warning to investors of any changes in corporate control.
  • Any changes to share ownership by more than 1% requires filing a new Schedule 13D form.

Understanding SEC Schedule 13D

SEC Schedule 13D is a report mandated by the U.S. Securities and Exchange Commission (SEC) of any individual or entity that holds more than 5% of the voting stock of any publicly-traded company. More specifically, the individual must be a beneficial owner of those shares. The SEC defines a beneficial shareholder as anyone with voting or investment power over their shares.

Originally, the shareholder filed Schedule 13D with the company whose stock they had purchased as well as any exchange on which the stock traded. The Dodd-Frank Act of 2010 removed this requirement, and beneficial owners now send their Schedule 13D directly to the SEC. The report is then uploaded to the commission’s online EDGAR database for public review.

Any changes to the shareholder’s position of more than 1% of outstanding shares must be reported in a subsequent amendment to the Schedule. This can include purchasing more shares or selling current shares.

Exceptions to filing Schedule 13D allow for filing a condensed form of the report, Schedule 13G, by any member of one of three groups. The first is exempt investors, who acquired their shares prior to the company registering with the SEC. The second group consists of qualified institutional investors, who report their positions at the end of a calendar year on the report. The final group has been exempt from Schedule 13D requirements since 1998. The group includes passive investors who can certify that they have no intention to control or influence the company issuing the stock.

Implementation of SEC Schedule 13D

Section 13D was added to the Securities Exchange Act of 1934 as part of a 1968 amendment known as the Williams Act. This addition responded to the increasing use of tender offers as part of corporate takeovers.

At the time, there was a gap in securities law that did not cover a need to provide adequate information to investors about changes in corporate control. Schedule 13D was designed to give individual investors advance warning of impending changes to corporate control, which could impact the future of the company, that could result from the consolidation of voting power by corporate raiders.

Section 13G was added in 1977 to allow investor groups who were either professional investors or unlikely to engage in shareholder activism a shorter version of Schedule 13D.

Sections of SEC Schedule 13D

There are seven sections in Schedule 13D, which are as follows:

  • Security and Issuer: This information corresponds to the legal entity that is making the security available for sale. It includes the name of the company, its address, and the security being sold.
  • Identity and Background: The information in this section relates to the individual or entity purchasing the security.
  • Source and Amount of Funds or Other Considerations: In this section, the purchaser will have to provide the means in which they obtained the funds to make the purchase of the securities.
  • Purpose of Transaction: The purchaser will have to provide the reason they bought the securities. Here they will specify if the purchase was purely for investment purposes or if there are other intentions, such as an intended acquisition.
  • Interest in the Securities of the Issuer: This includes the number of shares purchased and the percentage of the class they constitute.
  • Contracts, Arrangements, Understandings, or Relationships With Respect to Securities of the Issuer: This is to include other information, such as contracts and relationships related to the purchase of the securities.
  • Material to Be Filed as Exhibits: Any documents that can be used as exhibits in the filing.