TRANSFER AGENCY SEARCHES SEEM TO BE BOILING UP: OUR LIST OF TRAPS FOR THE UNWARY T-A COMPARISON SHOPPER

Suddenly, the U.S. Transfer Agency business is stirring up on a number of fronts, with more new entrants than we’ve seen in many years banging on corporate doors, as many public companies seem to be putting their business up for bids and/or negotiating renewals of old contracts. 

Whenever the subject of T-A contracts comes up, we are reminded of George Bernard Shaw’s line from his 1906 play, The Doctor’s Dilemma, that “all professions are conspiracies against the laity” – where - especially when it comes to contracts - issuers need to pay very special attention.

Accordingly, here’s our short list of the most dangerous traps for unwary signers:

• Limitations of liability: Every first draft of every T-A contract we’ve reviewed over the past 20 years has had one or more attempts – like trying to cap the liability at some fraction of the T-A’s annual fee or, outrageously, actually indemnifying the TA entirely for its own mistakes. No public company should ever sign-on to provisions that absolve or limit the liability of a Transfer Agent for its own mistakes. Period.

• Under-insured TAs: The primary reason for hiring a “professional” Transfer Agent is to insure your company against the very considerable risks – and liabilities – of BEING a Transfer Agent. Please take a few moments to review the article on “Transfer Agent Liabilities” on our website, and please understand clearly – that if a Transfer Agent does not have sufficient insurance – and other assets to pay for a big mistake – or for outright fraud by one or more company employees….YOUR COMPANY will be fully liable to make good.

• Automatic Contract Renewals: Even though such provisions are illegal in many states, we have seen many T-As write them into contracts and then take care not to notify clients when the initial term is up – and sometimes to try to raise the fee upon the “automatic renewal,”  One of the scummiest T-A tricks in the book – and an automatic disqualifier in our own book – but we’ve seen many ill-informed companies cave in rather than sue  the TA. (Call the SEC, we advise, if a TA tries to hold your records hostage.)

• “Roach-Motel Provisions”….Where it’s easy to get in but impossible to get out. Not so long ago one of the largest U.S. Transfer Agents routinely insisted on being paid exceptionally high “Termination Fees” – plus outlandishly high fees for furnishing the books and records to successor agents. And sometimes, they, and others still do, if they think they can get away with it. Make sure your contract addresses Termination Fees and Expenses in a clear and commercially reasonable manner. 

• Over-aged, outmoded and “creaky” legacy TA systems:  Our recent post on LinkedIn, in response to a new entrant raising $20million to build a TA system from scratch, likened the systems environment at most TAs as being like a 100-year-old house, with shaky wiring, creaky plumbing, 100 poorly constructed and connected mini-systems and over one hundred separate rooms that do not connect well – nor did the people in them. Be sure to do your own careful due diligence here – and ideally – get some professional help before renewing your TA contract – or before jumping ship to another TA.