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Form 8-K

What is Form 8-K?

Form 8-K is a report filed by public companies to notify shareholders of certain corporate material events that take place within the company that might affect the shareholders. Form 8-K’s are filed by these publicly reporting companies directly to the Securities and Exchange Commission

Form 8-K’s aren’t filed annually or quarterly; they are to be filed four days within the said material event that the shareholders need to be made aware of. Thus making them a current report rather than annual, quarterly, or biannual reports. 

The form contains 9 Sections and 31 subsections. Each section describes the event that a shareholder must know. 

What events trigger the filing of a Form 8-K?

A shareholder is entitled to information regarding the current happenings in the public companies. Form 8-K is an official report that announces to the shareholders the occurrence of a particularly significant event. 

The events that can potentially trigger the filing of a Form 8-K are – bankruptcies, receiverships, the consummation of a material asset sale or acquisition, incurring material debt, loan defaults, unregistered equity sales, amendment of the shareholder rights, the appointment of senior officers or their exits, elections, code of ethics being questioned, suspension of trading benefits under employee benefits, important financial statements and other exhibits, among others. 

Every investor is advised to go through the 8-K filings of the company they have invested in. These events mentioned above, along with several other events, are critical to the company and contain information that tends to affect the company’s share price, which consequentially affects the investor. 

What are the parts of Form 8-K? 

The Form 8-K essentially contains only two parts – the name and the description of the significant event that a shareholder needs to be aware of. Additionally, it may also include supporting documents like a financial statement to substantiate the occurrence of the event. 

Contents of a Form 8-K are factual and straightforward. If you were to read a Form 8-K, you would typically find the material event, a description of the event, and documents supporting the same all filed in one place. 

A CEO or CFO doesn’t have to attest to the accuracy of the form even if it contains sensitive supporting documents such as the company’s financial statement. 

A Form 8-K is not merely a notification sent out to the shareholders; it is supposed to be crafted so that it gives the shareholder an understanding of the significant corporate event and what it means for the company and its shareholders. For instance, if a company declares bankruptcy, Form 8-K should outline how it intends to reorganize itself. This will have an impact on the long-term share prices of the company. Shareholders can make an informed decision about their investments in the company based on their growth trajectory. 

Where to find the Form 8-K?

One can download Form 8-K from SEC’s EDGAR website. The form is available in a .pdf format. The EDGAR database contains all the 8-K filings made. However, the Form 8-K filed by a company is also made available on the company’s official website, typically under investor relations. 

What are the penalties for non-compliance?

Non-compliance with SEC with regard to Form 8-K can invite pretty harsh penalties for the companies. One of the penalties includes losing a company’s right to use Form S-3 for both primary and secondary offerings. SEC guidelines also state that the inability to file Form 8-K can also be considered prima facie evidence of a lack of enough disclosure controls as per the Sarbanes-Oxley Act of 2002. 

Benefits of filing Form 8-K

Notification 

Form 8-K announces to its shareholders of any significant event. This enables investors to make an informed decision about their investment in the company. In cases where a company declares bankruptcy or undergoes a merger, this notification becomes key to an investor. The supporting documents, description of the material event are pivotal in a shareholder’s decision-making process. 

Insider Trading 

The Securities and Exchange Commission has strict rules to avoid using any material information that isn’t made public information. A form 8-K aids the commission’s policy against insider trading. A company that files a Form 8-K avoids the possibility of any insider trading allegations that can be made against the company. 

Documentation & Research 

A company can also meet some highly specific disclosure requirements by filing Form 8-K on time. It also serves as valuable historical data for economic researchers or simply someone looking to invest in the company later. The form gives a fairly detailed preview of the event itself and its description. The supporting documents enable a holistic understanding with respect to why a certain event took place and the consequences of it for the company and its shareholders. It is also possible for researchers to estimate the impact of the material events using regression if required. Since Form 8-K disclosures are mandatory, the form provides a complete record of the events benefitting anyone who intends to invest in the company after being fully aware of the company’s records. 

Difference between Form 10-K and 8-K

Form 10-K is an annual report filed by publically traded companies that outlines their financial performance. It is much more than just an annual report; it is a comprehensive document sent to the shareholders before a meeting to elect the directors of a company. 

Information that needs to be included in the form is the company’s history, organization structure, earnings per share, financial statements, executive compensation, subsidiaries, and other relevant information. 

This document is key to driving a shareholder’s decision to buy or sell shares of the company or invest in the firm’s corporate bonds. 

Form 8-K, on the other hand, isn’t an annual report, and it serves the purpose of notifying its shareholders of an important material event that has occurred within the company. 

Filing Form 8-K is the SEC’s way of ensuring all material information about a significant event gets communicated to all the shareholders within four days of the occurrence of the event. This ensures that the shareholders are notified, and any future allegations of involvement in insider trading can be quickly dealt with. It is highly beneficial for publicly traded companies and their shareholders and prospective investors.

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