What is the 'Section 16'

Section 16 is a section of the Securities Exchange Act of 1934 that is used to describe the various regulatory filing responsibilities that must be met by directors, officers and principal stockholders. According to Section 16, every person who is directly or indirectly a beneficial owner of more than 10% of the company, or who is a director or an officer of the issuer of such a security, shall file the statements required by this subsection with the Securities and Exchange Commission (SEC).

BREAKING DOWN 'Section 16'

Section 16 of the Exchange Act of 1934 requires the reporting of beneficial ownership by the officers, directors or stockholders who possess stock directly or indirectly, resulting in beneficial ownership in excess of 10% of the company’s common stock or other class of equity. Parties that fall under Section 16 are typically referred to as insiders. This rule applies not only to public companies, but also private companies whose non-equity securities, such as bonds, are traded on national stock exchanges. Insiders of a private or public company covered by Section 16 must file specific forms with the SEC that disclose their equity interests and how they change over time as a result of past transactions.

Beneficial Ownership

Under Section 16, a person is considered a beneficial owner even if he does not directly own any equity interest in the company. Immediate family members sharing the same household with another member who beneficially owns interest in a covered company are also considered beneficial owners. Financial interest in a company can also arise indirectly as a result of multiple persons acting as a group to acquire, possess and sell a covered company's equity securities. Also, if a person owns equity derivatives that upon their exercise provide equity interest, he is also considered a beneficial owner. Also, officers and directors fall under Section 16 requirements, regardless of how small or large their beneficial ownership is.

Filing Requirements

Section 16 requires insiders of a covered company to electronically file Forms 3, 4 and 5. The SEC requires filing Form 3, which is an initial statement of beneficial ownership, if there is an initial public offering of equity or debt securities, or a person becomes a director, officer or 10% holder in a company. New directors and officers, as well as new significant shareholders, must file Form 3 within 10 days. If there is a material change in the holdings of a company's insiders, they are required to file Form 4 with the SEC. Also, pursuant to Section 16, Form 5 must be filed by an insider who has conducted an equity transaction during the year, if it was not previously reported on Form 4.

  1. SEC Form N-6F

    A filing with the Securities and Exchange Commission (SEC) that ...
  2. Form 4

    Form 4 is a document that must be filed with the Securities and ...
  3. Schedule 13D

    Schedule 13D is a form that must be filed when a person or group ...
  4. Interested Shareholder

    A shareholder or association with beneficial ownership, whether ...
  5. SEC Form N-CSR

    A form completed by registered management investment companies ...
  6. Form 3

    A document that must be filed with the Securities and Exchange ...
Related Articles
  1. Investing

    SEC Filings: Forms You Need To Know

    The forms companies are required to file provide a clear view of their histories and progress.
  2. Investing

    Understanding The Top SEC filing forms

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

    Using Public SEC Filings To Analyze Companies

    Reports from the Securities and Exchange Commission provide investors with an edge in determining the investment value of companies. Learn what to look for in these financial reports.
  4. Personal Finance

    Buy Stock With Insiders: How To Track Insider Buying

    Insider buying can be a sign that a company's stock prices will soon rise. Here's how to keep track of insider buying on public databases and websites.
  5. Trading

    What Investors Can Learn From Insider Trading

    Some insider trading is actually legal - and can be extremely telling for investors.
  6. Investing

    The Basics Of A Financial Analysis Report

    An overview of the major sections to consider when writing a financial analysis report on a company.
  7. Insights

    How The SEC Tracks Insider Trading

    We look at how the SEC tracks and tries to stop insider trading - a seemingly impossible task.
  8. Personal Finance

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  9. Investing

    Read Form 10-K to Help You Pick Better Stocks

    Find out how breaking down Form 10-K can help you pick better stocks. Learn to analyze this valuable source of a company's annual financial information.
  10. Personal Finance

    The Series 79 Exam: What It Is And When You Need It

    If you're getting into the field of investment banking, you'll need to know all about the Series 79.
  1. 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 >>
  2. Do I need to file an income tax return every year?

    Understand if a person needs to file a tax return every year. Learn the benefits of filing a yearly income tax return even ... Read Answer >>
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center