How to set up your company's Direct Stock Purchase Program
Frequently Asked Questions
- 1) What Is Direct Purchase?
- 2) Why Should an Individual Investor Participate? What are the Advantages?
- 3) How a Company Gets Started
- 4) How an Investor Gets Started
- 5) Costs (With the Issuance of the Recent No Action Letter)
- 6) Keys to a Successful Direct Purchase Implementation
- 7) Sample Letter to the SEC for Approval (No Action Letter)
1) What Is Direct Purchase?
- It is a program run by corporations and transfer agents, example:
![]()
- It allows investors to purchase shares directly from the issuing company or its agent
- The investor does not need to deal directly with a stockbroker
- Broker commissions are either eliminated or are greatly reduced
- It caters to small investors
2) Why Should an Individual Investor Participate? What are the Advantages?
- It is easy to participate
- It's convenient
- It's low cost
- You can start with a minimal investment
- It allows dollar-cost averaging
3) How a Company Gets Started
- Solicit management for consideration and approval
- Do they want more shareholders and the responsibilities that go with them?
- Register with the SEC
- Send Prospectus to current participants
- Review "Blue Sky" laws for state registration requirements
- Review and document the goals of YOUR Direct Purchase program
4) How an Investor Gets Started
- Interested investor phones the company or reviews the investment information on Netstock Direct
- Company provides the investor with a prospectus, either hard copy or online
- The investor completes the enrollment form and returns it with a check or direct bank debit instructions
- The company sets up an account
- The company then purchases and allocates shares through the direct investment program
5) Costs (With the Issuance of the Recent No Action Letter)
- Legal fees should be minimal
- Filing time should be one to two months
- Other costs you will incur:
- Printing
- Mailing
- Online service fees
- Other cost considerations:
- Incremental increase in number of accounts
- Proxy costs for street accounts vs. registered accounts
- Whether to implement fees to offset costs
6) Keys to a Successful Direct Purchase Implementation
- Make use of proven techniques
- Use boilerplate plans
- Engage experienced consultants or attorneys
- Ensure your sofware or tranfer agent supports Direct Purchase
- Test the amount of time it will take to establish an account from beginning to end
- Mail packages quickly, and utilize online delivery for the technology enabled investor
7) Sample Letter to the SEC for Approval (No Action Letter)
Sample Notice to the Securities
and Exchange Commission of Claim
to Class Exemption From Rule 10b-6
[Letterhead of Issuer, DRSPP Agent, or Counsel to Either]
[Date]
Brandon Becker, Esq.
Director
Division of Market Regulation
Securities and Exchange Commission
Re: Notice of Reliance on Exemption From Rule 10b-6 Pursuant
to Commission Release No. 33-7114 and 34-35041
Dear Mr. Becker:
In accordance with the terms of Securities and Exchange Commission Release No. 33-7714 and 34-35041, December 1, 1994, and the Commission Letter to Mr. Michael J. Foley that accompanies that release, this letter serves to notify the Commission that [insert name of the issuer], its affiliated purchasers, and its Dividend Reinvestment and Stock Purchase Plan Agent, [insert name of the Service Program Agent], intend to rely on the order contained in the release granting exemption from Rule 10b-6 under the Securities Exchange Act of 1934, as amended. The [insert name of issuer] also hereby represents that its Dividend Reinvestment and Stock Purchase Plan will be operated in a manner consistent with the conditions of that order of exemption.
Sincerely yours,
[Authorized Signature]