Schedule 13D (SEC) - Explained
What is a Schedule 13D?
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Table of ContentsWhat is a Schedule 13D?How is the Schedule 13D Used?Sections of Schedule 13DAcademic Research on Schedule 13D
What is a Schedule 13D?
Schedule 13D is a filing that individuals or a group of people must file with the Securities and Exchange Commission (SEC) when acquiring the beneficial ownership of a public company over 5%. Schedule 13D is otherwise called a beneficial ownership report, this report tells investors who has the highest ownership in a company.
It is a report that investors often look out for. When an individual acquires more than 5% of the shares of a company, this ownership must be disclosed to the SEC within 10 days of the transaction. If the acquisition of shares is done by more than one person, other people who have voting powers are also disclosed on Schedule 13D.
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How is the Schedule 13D Used?
A Schedule 13D is mandatory when more than 5% of the shares of a publicly traded is purchased by an individual or group of people. Through Schedule 13D, the purchase is disclosed to the SEC and the beneficial ownership is also disclosed to the investors of the company. Due to the fact that investors might purchase over 5% of the shares or voting power of a company for the purpose of hostile takeover, the Securities and Exchange Commission requires that purchases over 5% must be publicly disclosed through Schedule 13D. Schedule 13D aids transparency in a company and helps other shareholders make informed investment decisions. The individual who purchases over 5% of a company's shares is called a beneficial owner and must file ownership with the SEC within 10 days of transaction.
Sections of Schedule 13D
There are seven sections in Schedule 13D, they are;
- The Security Issuer: this section contains the company that sells the security to the individual, the address of the company and the type of security sold.
- Background and Identity: this section contains information about the individual that makes the purchase or group of persons. If it is a company, the background and identity of top executives are also supplied.
- Source and amount of funds for the acquisition: this provides information on how the acquiring person or company got the funds used for the purchase.
- Purpose of Transaction: in this section, a beneficial owner discloses the intent of the purchase. Whether the transaction was made because the individual saw the firm as an investment opportunity or if there are other underlying purposes for the transaction, all these information are contained in section 4.
- Interest in Securities of the Issuer: This section contains information about the percentage of shares acquired and the exact number.
- Contract of transaction: agreements, relationships, arrangements and other terms connected to the purchase of the securities are disclosed.
- Exhibits: Documents or materials that are used as exhibits are contained in this section.
In certain cases, error may occur while compiling Schedule 13D, these errors need to be corrected. The SEC must be aware of any changes made to information filed in Schedule 13D. Also, when there is an increase in the percentage of shares held by the investor, there is a need to amend the Schedule 13D to reflect the changes. Schedules 13D filings with the SEC are made available to investors through the EDGAR database. Schedule 13D is SC 13D.
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