Schedule 13D (SEC) – Definition

Cite this article as:"Schedule 13D (SEC) – Definition," in The Business Professor, updated September 17, 2019, last accessed August 11, 2020, https://thebusinessprofessor.com/lesson/schedule-13d-definition/.

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Schedule 13D Definition

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.

A Little More on What is Schedule 13D

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 diclosed 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;

  1. 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.
  2. 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.
  3. 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.
  4.  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.
  5. Interest in Securities of the Issuer: This section contains information about the percentage of shares acquired and the exact number.
  6. Contract of transaction: agreements, relationships, arrangements and other terms connected to the purchase of the securities are disclosed.
  7. 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.’

References for Schedule 13D

https://en.wikipedia.org/wiki/Schedule_13D

https://www.investopedia.com/terms/s/schedule13d.asp

https://www.law.cornell.edu/cfr/text/17/240.13d-101

http://www.businessdictionary.com/definition/Schedule-13D.html

Academic Research on Schedule 13D

Schedule 13D: Wild Card in the Takeover Deck, Robinson, J. W., & Mahoney, J. D. (1971). Bus. Law, 27, 1107. The Securities Exchange Act, 1934 (SEA) was amended by the William Act in July 1968. It was basically intended to bring cash tender proposals under Federal regulation. Its main purpose was to require pertinent data disclosure and ensure stockholders protection. When an individual or a group tries to obtain a substantial equity securities block of a corporation you a takeover bid or cash tender offer through privately negotiated purchases or by the open market or when it repurchases own equity securities. This Act was passed for the investors’ benefits. It was not designed to tip the regulation balance in support of management or the person striving for corporate control.

To Disclose or Not to Disclose-CSX Corp., Total Return Swaps, and Their Implications for Schedule 13D Filing Purposes, Bertaccini, D. (2009). Cardozo L. Rev., 31, 267. This paper presents arguments that the characterization of Total Return Swap (TRS) addressing the investment bank as the BO (Beneficial Owner) of the stock opposes the transparency goals of the Williams Act. The author discusses this beneficial ownership mentioned in section 13(d) and elaborates the framework of TRS and how the defendants utilized it in an SDNY decision taken recently. Then, he analyzes the swap’s judicial treatment in CSX Corporation and the criticism on the endorsement of conducting enquiries by the court case-by-case to determine whether a person objectively acts to avoid the section 13(d) reporting requirements. Finally, he suggests a judicial structure presuming BO in the hedge funds.

The meaning of item four of Schedule 13D of the Securities Exchange Act of 1934: A new framework and analysis, Li, A. J. (1996). Bus. Law., 52, 851. 5% beneficial ownership (BO) in registered equity securities makes the person accountable who gets a company’s stock to troublesome disclosures needed under item 4 of Schedule 13D, SEA, 1934 (Securities Exchange Act). The United States courts and SEC (Securities and Exchange Commission) have explored what is the information required as per the item since the motives of corporate management, bidders and stockholders to information disclosure is at odds. Consequently, the item 4 disclosure mostly fluctuates between ‘’under and ‘over’ disclosure. This paper synthesizes and explains the recent law addressing this problem. The author suggests a new framework to apply when addressing this problem.

Little Letter, a Big Difference: An Empirical Inquiry into Possible Misuse of Schedule 13G/13D Filings, A, Giglia, K. (2016). Colum. L. Rev., 116, 105. The schedule 13D reporting requirements of the SEC (Securities & Exchange Commission) are drawing much attention of the investors. This is a beneficial ownership form must be filed by several investors for reporting the equity holdings. This paper presents an approach of why truly active investors have the option to file against the schedule 13G by analyzing the benefits and costs attached to inappropriately filing under the recent reporting regime. This research also investigates statistical trends of investor switches in the 2 filings to detect systemic filing misuse. The author suggests enhancing the supervisory filing and structural requirements which may help combat truly active investors’ inappropriate use of the 13G filing.

SCHEDULE 13D/A, Tanabe, C. Y. (2003). SCHEDULE 13D/A. This paper explains Schedule 13D/A. It brings under discussion the filing person who files a Schedule 13D statement to report the acquisition. These Schedules must ensure the inclusion of a signed original and 5 copies along with all exhibits. The rest of the cover page has to be filled out for the initial filing on the form of a reporting person w.r.t the securities subject class and for any further amendment which contains information altering disclosures mentioned in the cover page. The information required on the rest of the cover page will not be considered files for Section 18 of the SEA (Securities Exchange Act) 1934.

Family Controlled Firms: Information content in Schedule 13D Filings, Mudde, P., & Sundaram, S. (2011). In CONFERENCE PROCEEDINGS BY TRACK (p. 32). This research evaluates the signalling impact of stock disposition and acquisition reported on 13A and 13D filings for FCFs (Family Controlled Firms). This enables the researchers to examine the complex signals which other researches could not go through. Generally, the authors argue that the family-based stock disposition (reported with the objective of transaction specifying reasons other than diversification or liquidity) must be linked to higher negative performance when the trade is over.

SCHEDULE 13D, Stock, C. (2008).  This article provides information about the Schedule 13D of the filings for FCFs (Family Controlled Firms). A person, who is acquiring beneficial ownership of above five percent of any publicly traded securities class in a public firm, has to submit this filing to the United States SEC (Securities & Exchange Commission) within ten days. A filet needs to update the filing of Schedule 13D promptly to show any material change in the discloses facts, including the disposition or acquisition of one percent or above of the securities class which are the filing subject.

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 13D, Brubacher, J. W. (2003).  This paper is a detailed overview of the Schedule 13D filing form to be submitted to the SEC (Securities & Exchange Commission) Washington DC. The fields of this form have been given and explained, such as the name of the reporting person, source of funds, place of origination, number of shares, every reporting person owns beneficially and the aggregate, type of reporting person, etc.

Activism of Blockholder Investors: Who Drives the Purchases of the Target Shares before Schedule 13D Filing?, Lee, C. The findings of this paper are that the blockholder activists or their associates drive considerable pre-announcement purchases, confidentially. Confidential block formation generates great payoffs in the period of post-announcement while this is not the case with the open block formation. The results suggest enforcing more rigorous reporting requirements to stop blockholder activists exploiting the information benefit.

Regulation 13D and the Regulatory Process, Macey, J. R., & Netter, J. M. (1987). Wash. ULQ, 65, 131. This paper studies the regulation 13D of the SEA  1934 (Securities Exchange Act) and explores its regulatory process. The SEC (Securities & Exchange Commission) enforced Schedule 13D consistent with the authority under the SEA in 1934. It imposes specific disclosure requirements on individuals within 10 days of the date which they need more than 5% of a public firm’s beneficial ownership. This paper states that Congress attempts to decrease the percentage of threshold acquisition to nearly 2% and shorten the window from 10 days to 2 or even 1 day. It looks a reasonable time to examine the welfare impacts of disclosure requirements.

Regulations 14A and 13D: Impediments to Pension Fund Participation in Corporate Governance, Ball, C. D. (1991). Wis. L. Rev., 175. This paper aims to analyze the fund participation issue in corporate governance. Presently, the SEC (Securities & Exchange Commission) section 130 and 14A regulate beneficial ownership and proxy solicitations and the ability of hamper pension funds and stock to involve in the shareholders’ communications must hold the corporate management responsible for its actions. This article takes many solutions to this issue under consideration and suggests creating narrowly-drawn exemptions by the SEC for the investment managers of pension fund from 130 and 14A regulations.

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