What It Is:
A transfer agent manages and maintains records of who owns a corporation's or mutual fund's stock or bonds. Most transfer agents are banks or trust companies, although some companies act as their own transfer agents.
How It Works/Example:
Let's assume Company XYZ is a publicly traded corporation that has 10,000,000 shares outstanding. If the shares trade all day, how does Company XYZ know who owns its shares? The answer lies with the transfer agent.
The transfer agent has three big jobs: 1) to issue and cancel stock certificates (including when a company pays a stock dividend or has a stock split); 2) to be an intermediary that makes the dividend or interest payments, sends out and keeps track of proxy materials, exchanges the company's stock or bonds if a merger occurs, tenders shares when necessary, and mails the company's financials and other reports; and, 3) to deal with replacing lost, stolen, or destroyed certificates.
Why It Matters:
Transfer agents are crucial behind-the-scenes entities in the business world because they maintain important information and protect even the smallest shareholder or bondholder's right to information disclosure. Without transfer agents, companies would have to find other ways to manage the incredible, time-consuming tasks of keeping track of the constant changes in shareholder and bondholder information.