Section 16: The Basics of Forms 3, 4, and 5

Section 16(a) of the Securities Exchange Act of 1934 requires certain corporate insiders—specifically officers, directors, and beneficial owners of more than 10% of a public company’s equity securities—to publicly disclose their holdings and transactions in the company’s stock.

These disclosures are made on SEC Forms 3, 4, and 5. A clear understanding of when and how to file each form is essential; late or incorrect filings can lead to reputational issues, regulatory scrutiny, and potential liability.

With the recent enactment of legislation extending Section 16(a) reporting obligations to foreign private issuers, this is a good time to revisit the fundamentals—particularly for stock plan administrators and legal professionals who are newly responsible for Section 16 compliance.

SEC Form 3: Initial Statement of Beneficial Ownership

Form 3 is an insider’s initial filing under Section 16(a). When an individual becomes an officer, director, or 10% beneficial owner, they must file Form 3 within 10 calendar days of becoming subject to Section 16.

Form 3 discloses all equity securities of the company in which the insider has a beneficial ownership interest at the time they become an insider.

Importantly, all insiders must file a Form 3, even if they do not beneficially own any reportable securities. In that case, the form is filed without any holdings reported on it.

Key Components of Form 3

For each class of equity security, insiders must report:

• Security Title
  The class or title of the security (e.g., common stock, restricted stock, stock options).
• Amount Beneficially Owned
  The number of securities beneficially owned as of the filing date.
• Nature of Ownership
  Whether the securities are owned directly or indirectly (for example, through a spouse, trust, or controlled entity).

For derivative securities—e.g., securities that are convertible into other securities, such as stock options or convertible preferred stock—the insider must also report:

• Title and amount of the underlying securities
• Conversion or exercise price
• Date exercisable
• Expiration date

Examples of When Form 3 Must Be Filed

Example 1: Appointment of a New Officer
Jane Doe is appointed Chief Financial Officer of a public company on July 1, 2025. Jane must file a Form 3 by July 11, 2025.

Example 2: Acquisition of More Than 10% Ownership
Mary Johnson acquires 12% of a public company’s outstanding common stock on September 1, 2025. Mary must file a Form 3 by September 11, 2025.

SEC Form 4: Changes in Beneficial Ownership

Form 4 is used to report changes in an insider’s beneficial ownership. In most cases, a Form 4 must be filed within two business days of the transaction.

Form 4 filings are closely monitored by investors, analysts, and regulators. Market participants often review these filings for insight into insider sentiment—such as whether executives are buying or selling company stock.

Form 4 is also the primary reporting mechanism used to enforce Section 16(b), which requires insiders to disgorge any profits realized from matching purchases and sales occurring within a six-month period (the “short-swing profits recovery” provision).

Key Components of Form 4

Each Form 4 must include:

• Transaction Date
  The date the transaction occurred (and, if applicable, the deemed execution date).
• Securities Information
  The type of security, number of shares or units acquired or disposed of, transaction price, and whether the transaction was made pursuant to a Rule 10b5-1 trading plan.

For derivative securities, the filing must also include the title and amount of underlying securities, exercise or conversion price, date exercisable, and expiration date.

• Transaction Code
  An SEC-designated code describing the nature of the transaction (e.g., “P” for purchase, “S” for sale, “A” for grant or award). Voluntarily reported transactions include a “V” modifier. A complete list is available in the Form 4 instructions.
• Nature of Ownership
  Whether the securities are owned directly or indirectly.
• Amount Beneficially Owned Following the Transaction
  The insider’s holdings in the relevant class of securities after the transaction.

Examples of When Form 4 Must Be Filed

Example 1: Director Sells Shares
John Smith, a director of a public company, sells 500 shares of the company's stock on Thursday, July 10, 2025. He must file a Form 4 by Monday, July 14, 2025.

Example 2: Officer Receives an Equity Award
Mary Johnson, the CFO of a public company, receives a grant of stock options on Monday, December 8, 2025. The grant must be reported on Form 4 by Wednesday, December 10, 2025.

SEC Form 5: Annual Statement of Changes

Form 5 is an annual filing used to report certain transactions that were not previously reported on Form 4. It must be filed within 45 calendar days after the company’s fiscal year-end.

There are two primary categories of transactions reported on Form 5, described below.

Transactions Eligible for Deferred Reporting

The SEC permits a limited number of transactions to be reported on Form 5 instead of Form 4. Today, this category is narrow and most commonly includes:

• Small acquisitions of securities
• Gifts to the insider (note that gifts by the insider must be reported on Form 4)

Delinquent Transactions

Form 5 is also used to report:

• Transactions that should have been reported earlier on Form 4 but were not
• Holdings that were omitted from a Form 3

Avoiding the Need to File Form 5

Insiders can often avoid filing Form 5 altogether by ensuring all transactions and holdings are reported before the fiscal year-end. For example:

• Transactions eligible for deferred reporting can be voluntarily reported on Form 4
• Delinquent transactions can be reported via a late Form 4
• Omitted holdings can be corrected by amending Form 3

 Insiders that do not have any unreported transactions or holdings as of the company’s fiscal year end do not need to file Form 5. 

Nonreportable Transactions

Certain transactions are exempt from Section 16(a) reporting. Common examples include:

• Purchases under Section 423 employee stock purchase plans
• Routine transactions under qualified 401(k) and other tax-qualified plans
• Expirations or cancellations of options and other derivative securities where no consideration is received
• Acquisitions or dispositions resulting from stock splits, reverse splits, or stock dividends
• Acquisitions or dispositions pursuant to a domestic relations order (e.g., divorce)

Although the transactions themselves are not reported, any changes in an insider’s holdings as a result of a nonreportable transaction must be reflected the next time the insider reports a transaction in the relevant holdings.

Learn More

For the latest updates on Section 16, don't miss our webinar 2026 Section 16 Developments with Alan Dye. For additional resources related to Section 16, please visit  Section16.net and for those looking for foundational knowledge on the equity plan administration, please check out our Stock Plan Fundamentals course.