What Is SEC Form 4: Statement of Changes in Beneficial Ownership?
Key takeaways
– SEC Form 4 discloses changes in ownership of a company’s equity by insiders — officers, directors, and beneficial owners of more than 10% — and must be filed electronically with the SEC (EDGAR) within two business days after the transaction. (SEC; Investopedia)
– Form 4 is one of three core Section 16 forms: Form 3 (initial statement), Form 4 (updates on transactions), and Form 5 (annual catch‑up for missed/reportable transactions). (SEC)
– Information on Form 4 is used for transparency, investor analysis, and by the SEC in enforcement of insider‑trading and Section 16 short‑swing profit rules. (SEC; Investopedia)
Deep dive: purpose and legal basis
– Why it exists: Section 16 of the Securities Exchange Act of 1934 requires disclosure by insiders to protect investors and deter insider trading and short‑swing profits. Form 4 makes public (near real‑time) changes in insiders’ equity positions. (SEC)
– Who must file: company officers, directors, and anyone who becomes a beneficial owner of more than 10% of a registered class of a company’s equity. Beneficial ownership is broadly defined to include shares held directly or that can be controlled. (SEC)
Form 3, Form 4, Form 5 — how they work together (Table 1)
Table 1 — Purpose and deadlines
– Form 3 — Initial statement of beneficial ownership. Deadline: within 10 days of becoming an insider (officer, director, or >10% owner). (SEC)
– Form 4 — Statement of changes in beneficial ownership (each transaction). Deadline: within two business days after the transaction date. Filed electronically via EDGAR (XML). Amendments are filed as Form 4/A. (SEC; Investopedia)
– Form 5 — Annual statement reporting certain transactions not reported on Form 4 (e.g., exempt transactions). Deadline: within 45 days after the issuer’s fiscal year end. (SEC)
What Form 4 contains (how to read one)
– Reporting Person: who is filing and their relationship to the issuer (officer, director, 10% owner).
– Issuer and security: company name, ticker, class of security.
– Transaction date and nature: date of the trade/transaction and a transaction code describing the type (common codes include P = purchase, S = sale, A = grant/acquisition, D = disposition, X = exercise of option, M = conversion; see SEC Form 4 instructions for the complete list and exact definitions). (SEC)
– Amounts and price: number of shares acquired or disposed, price per share (if applicable).
– Ownership after transaction: total shares and percent owned after the transaction.
– Nature of ownership: direct vs. indirect, and footnotes that disclose additional details (e.g., whether shares are held in trusts, subject to restrictions). (SEC)
Filing process and practical requirements
– Method: Electronic filing via the SEC’s EDGAR system is required for most filers. Filers usually submit Form 4 in EDGAR XML format; vendors and legal counsel commonly assist. Hardship exemptions are possible but rare. (SEC)
– Deadline: Form 4 must be filed within two business days after the transaction date. Count business days; the clock starts on the transaction date (confirm timing rules with counsel or the SEC guidance in complex cases). (SEC; Investopedia)
– Amendments: If information was omitted or incorrect, file an amended Form 4 (Form 4/A) as soon as possible. Repeated failures to properly report can draw enforcement action. (SEC)
– Recordkeeping: Keep complete internal records showing trade date, trade confirmations, computation of beneficial ownership, and any documentation supporting claimed exemptions. Those records are essential if the SEC or counsel asks for support.
Practical steps/checklist for insiders (so you comply)
1. Identify who is a reporting person: officers, directors, and >10% beneficial owners. Maintain an updated list.
2. Maintain up‑to‑date beneficial‑ownership calculations, including direct and indirect holdings, options, RSUs, and shares that could be acquired. Recalculate after each transaction.
3. For any transaction, determine if it is reportable under Section 16 and whether it needs immediate Form 4 filing or qualifies for another disclosure (e.g., exempt transactions that can be reported on Form 5).
4. Gather transaction details immediately after execution: transaction date, type (purchase/sale/exercise/grant/conversion), number of securities, price, and the nature of ownership.
5. Prepare and file Form 4 via EDGAR within two business days. If using an outside filing service or counsel, give them documentation promptly to meet the deadline.
6. If a mistake is discovered, file an amended Form 4 (4/A) immediately and keep a record of corrective actions.
7. At fiscal year end, review all transactions to determine if any missed reportable items must be filed on Form 5 within 45 days after the fiscal year end.
8. Consider preclearance and internal trading policies to avoid prohibited trading windows and to demonstrate compliance efforts.
Common pitfalls and compliance risks
– Missing the two‑day deadline — even short delays can trigger SEC inquiries and penalties.
– Failing to aggregate indirect holdings — beneficial ownership can include holdings of family members, trusts, or entities controlled by the reporting person.
– Misclassifying the transaction code or ownership type — that leads to inaccurate public disclosure.
– Forgetting to amend an incorrect filing promptly.
Enforcement and penalties
– The SEC uses Form 4 disclosures in civil enforcement and may refer matters to criminal authorities or self‑regulatory organizations. Enforcement can include injunctions, disgorgement (notably under Section 16(b) for short‑swing profits), civil money penalties, and, in criminal cases, fines or imprisonment. (SEC)
– Section 16(b) specifically allows recovery of short‑swing profits from any purchase and sale (or sale and purchase) within a six‑month period by an insider, regardless of intent. Accurate and timely Form 4 filings are essential evidence for compliance and defenses. (SEC)
Related SEC filings you should know
– Form 3 — initial ownership filing (within 10 days of becoming a reporting person). (SEC)
– Form 5 — annual catch‑up for certain exempt or late transactions (45 days after fiscal year end). (SEC)
– Form 8‑K — reports material corporate events (not a substitute for Section 16 filings). (SEC)
– Schedule 13D/G — required when someone acquires more than 5% of a company’s stock (different disclosure regime regarding activist investors). (SEC)
– Registration statements (S‑1/S‑1A) — used when securities are offered to the public, not Section 16 forms but relevant to reporting and ownership disclosure. (SEC)
Case study: Elon Musk’s February 2020 Form 4 filing (example)
– In February 2020 Elon Musk filed a Form 4 reporting a purchase of 13,037 Tesla shares at $767 per share, leaving him with 34,098,597 shares after the purchase. This Form 4 was filed through EDGAR and illustrates how the filings disclose the transaction date, amount, price, and updated ownership amounts. (SEC EDGAR; Investopedia summary)
Practical timeline example
– Trade executed on Monday (transaction date). Counting business days, Form 4 must be filed no later than Wednesday (two business days after the transaction) — earlier if internal compliance requires same‑day collection of trade details for review and filing preparation.
When to get counsel or specialized help
– Complex beneficial‑ownership situations (family trusts, derivatives, pooled vehicles).
– Large transactions that might trigger Schedule 13D obligations or other public‑filing consequences.
– Uncertain transaction codes, timing disputes, or potential late‑filing exposure.
– A review when insiders frequently trade or when there are cross‑jurisdictional or tax considerations.
Resources and where to file
– SEC Form 4 page and instructions (for form structure, codes, and technical filing guidance): https://www.sec.gov/about/forms/form4.pdf and the SEC’s Forms 3, 4, 5 overview. (SEC)
– EDGAR filings/search (to view filed Form 4s and historical filings): https://www.sec.gov/edgar/search/ (SEC)
– Investopedia summary of Form 4 (lay explanation and context): https://www.investopedia.com/terms/f/form4.asp (Investopedia)
The bottom line
Form 4 is a timely, public record of insider transactions designed to increase market transparency and deter misuse of material nonpublic information. Insiders must have clear internal controls to identify reportable transactions, collect accurate details immediately, and file Form 4 electronically within two business days. Robust policies, routine training, and timely counsel when in doubt will reduce the risk of late or inaccurate filings and the attendant enforcement exposure.
Sources
– U.S. Securities and Exchange Commission — Form 4 and instructions; Forms 3, 4, 5 overview; EDGAR search results.
– Investopedia — “Form 4” overview.