The Dos and Don’ts of Shareholder Recordkeeping for Private Banks

Public and private banks are vastly different, but in some areas, they might be more alike that you may think.

Public banks are required to work with a transfer agent for their investor recordkeeping. Private banks, including institutions that are not listed on a stock exchange or regularly file financial reports with the Securities and Exchange Commission, do not have the same obligations as their publicly traded counterparts; however, this does not mean that sound recordkeeping practices are not just as important.

Based on my more than 30 years in the industry, these are the most important Do’s and Don’ts to consider when it comes to managing your investor records:

DO keep a close eye on your overall share balance. It is critical that the shares held on your share register match the number of shares outstanding that your financial reporting office says are there. Changes in shares outstanding (where there is an increase or decrease in this overall figure) don’t happen very often and may not cause an issue in your day-to-day business. But, if shares are not in balance, trouble will arise in the instance of a change-in-control event, such as an acquisition. The need to rehabilitate the list could complicate and delay the corporate event.

DON’T let share issuance discrepancies linger. When a share transfer takes place, the transaction must be recorded for both the transferor and transferee. For private banks, shares are often not liquid and transfers rarely happen. Given their rarity, it’s important to take special care to properly record transfers on the books of the company. Errors can be hard to find later on— especially when the person who had a photographic memory of the list has retired. It’s best not to let discrepancies happen in the first place, but if they do, resolve them now and avoid a messy accounting issue much later on.

DO pay special attention to executive equity awards. It’s usually not a good idea—or a good career move—to keep improper and inaccurate equity award records of your executives and directors.

DON’T underestimate the importance of data security. Keeping accurate shareholder records is important. Safeguarding that information is even more important. This means protecting data from both outside intrusion and weak internal processes that could threaten it. Data security and security breach notifications are also legal matters that need to be addressed to comply with state and federal law.

DO maintain regular communications with your investors. Part of the C-suite’s business is to continue to attract investors to the company—both to help boost the demand for the stock but also to try to attract some liquidity as well. You can make the C-suite’s job easier by delivering timely communications to your existing investors, keeping them happy.

DON’T lose sight of your regulatory obligations. Companies that file with the SEC obviously need to follow its reporting guidelines. But even those that don’t report to the SEC will need to comply with state or federal regulations applicable to the bank regarding governance and investor relations.

DO perform a regular review of your company charter and bylaws. You should have your counsel review these documents from time to time. This gives you the opportunity to make updates that support your business objectives. For example, you should consider the elimination of stock certificates if they are specifically mentioned in the bylaws.

Making this update allows for the use of book-entry statements (much like those one might see if they own a mutual fund or have their own brokerage account) and for more modern communications and proxy voting technology such as the electronic delivery of annual meeting materials and online voting. Your counsel will need to review applicable banking regulations to ensure these options are available.

Proper tracking of your investors and their holdings is as critical to the success of your business as your relationship with your banking customers. Adhering to strong governance and compliance practices will reduce opportunities for mistakes and risk going forward.