What Are SEC Related Party Disclosures?

Related Party Disclosures Item 404 Regulation S-K

Securities Lawyer 101 Blog

The Securities and Exchange Commission’s (the “SEC”) disclosure requirements for transactions with certain Related Persons are designed to provide shareholders with a clear and complete picture of key financial relationships impacting public companies. Items 404(a) of Regulations S-K and S-B set out the SEC’s disclosure rules for these Related Person transactions.  This blog post addresses the requirements of Item 404(a) for Related Party Disclosures.

Who Is a Related Person?
The term “Related Person” means any person who was in any of the following categories at any time during the specified period for which disclosure under of Item 404(a) is required:

  • any director or executive officer of the issuer and his or her immediate family members;
  • any director nominee and his or her immediate family members, if disclosure was provided in a proxy or information statement relating to the election of directors; or
  • a security holder known to the issuer to beneficially own more than 5% of any class of the issuer’s voting securities, or his or her immediate family members, when a transaction in which such security holder or family member had a direct or indirect material interest that had occurred or existed.

What Information Must be Disclosed?
Item 404(a), consists of a general statement requiring that the issuer disclose any transaction:

  • since the beginning of the last fiscal year, or any currently proposed transaction;
  • in which the issuer was or is to be a participant;
  • in which the amount involved exceeds $120,000; and
  • in which any Related Person had or will have a direct or indirect material interest.

The definition of “immediate family member” includes stepchildren, stepparents, and any person sharing the household (other than an employee or tenant) of a director or a nominee for director.

What Disclosures Are Required  For Transactions with Related Persons?
Under Item 404(a), companies must disclose the following information about the transaction involving the Related Person:

  • the Related Person’s name and relationship to the issuer;
  • the Related Person’s interest in the transaction with the issuer; including such person’s position or relationship with, or ownership in, a firm, corporation, or other entity that is a party to or has an interest in the transaction;
  • the approximate dollar value of the amount involved in the transaction, as well as the approximate dollar value of the Related Person’s interest in the transaction; and
  • any other information regarding the transaction or the Related Person that could be material to investors in light of the circumstances of the particular transaction.

The rules require that the dollar value of the Related Person’s interest in the transaction be calculated without regard to any profit or loss involved in the transaction.  Companies without a written policy in place for reviewing and approving Related Person’s transactions should adopt one to ensure compliance with the SEC’s requirements.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit  www.securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855