What is an 8-K?
An 8-K, also known as Form 8K, is a report that notifies the public of any unscheduled events or changes that are material to the ongoing performance or existence of a company, that are therefore important to its shareholders and the Securities & Exchange Commission (SEC). Examples of these types of events are resignations of company directors, acquisitions, bankruptcies, or changes to the financial year.
Key Learning Points
- An 8-K is a current report that companies must file with the SEC to announce major events that shareholders should know about
- Companies are required to file an annual report 10-K, a quarterly report 10-Q as well as a form 8-K
- The report provides current information which enables shareholders to make informed decisions
- The report is structured to highlight key disclosure items required by the Securities Exchange Commission (SEC)
What is Required for an 8-K?
An 8-K has to be filed promptly, within four business days of the event for the vast majority of report triggers. The required information varies depending on the item that’s being disclosed. For example, for item 1.03 – Bankruptcy or Receivership, a company must disclose the bankruptcy or receivership, then file future 8-Ks outlining the plan for reorganization or liquidation and the court’s confirmation of that plan. Investors will be able to access these 8-Ks on the SEC’s EDGAR website, which has 8-Ks publicly available; investors can then use the reports to see whether the stock they own is likely to be cancelled, or if the company is likely to be removed from receivership in the near future.
Another common example in the world of mergers and acquisitions is item 2.01 – Completion of Acquisition or Disposition of Assets. This includes buying or merging with another company. For this item, the company must describe in detail the terms of the transaction.
Benefits of an 8-K
The main benefit of the 8-K is that companies can disclose information directly to investors and the SEC without it being filtered through other means of communication, providing timely information on business changes. Filing an 8-K on time means that the company is fulfilling its filing obligations to the SEC, and is less likely to be accused of insider trading. It is a good way for companies to increase transparency to investors about their operations.
The 8-K is also a valuable historical record for investors, researchers and historians. As 8-Ks are a required document, a researcher could look at all the impacts of a certain economic event, such as a depression or change to the tax code, and see fully the impact on the operation and management of listed companies in a certain industry sector.
Disadvantages of the 8-K
The only real disadvantage of the 8-K is that it takes time, and therefore cost, to complete and file it, and this is often done in the short four business days required between event and filing by the SEC. As there are 31 different qualifying types of events that require an 8-K, some small companies could be put off listing on the stock exchange because of the increased administrative costs.