Section 30.1

Corporate Regulation and Expansion Chapter 30 Section 30.1 Government Regulation of a Corporation Section 30.2 Corporate Expansion and Dissolution

What You’ll Learn How to identify the source of the federal government’s power to regulate business (p. 647) How to identify the two statues that regulate the sale of securities (p. 647)

What You’ll Learn How to identify the statutes that regulate antitrust activities (p. 649) How to identify the statutes that regulate energy and the environment (pp. 651 & 652)

Why It’s Important Understanding how the government regulates corporate activities will help you protect your rights as a corporate shareholder, especially if a corporation gets involved in antitrust activities.

Legal Terms commerce clause (p. 647) security (p. 648) Securities and Exchange Commission (SEC) (p. 648) registration statement (p. 648) prospectus (p. 648)

Section Outline Regulating Corporate Growth   Business and the Constitution Securities Regulation

Section Outline Antitrust Laws Sherman Antitrust Act Clayton Act Federal Trade Commission Act Robinson-Patman Act Later Amendments

Section Outline Other Forms of Regulation Energy Regulation Environmental Protection Regulation

Pre-Learning Question Why does the government regulate corporate growth?

Regulating Corporate Growth There are different points of view about corporate growth. Growth and expansion are good as long as it does not restrain competition.

Regulating Corporate Growth Expanding a corporation does not necessarily increase productivity and may actually reduce competition. Expansion allows for economies of scale and may save a fading company.

Regulating Corporate Growth The federal government has passed a series of acts to regulate corporate expansion. These acts seek to protect the interests of both the corporations and shareholders.

Pre-Learning Question Where does the federal government get the authority to regulate business?

Business and the Constitution The federal government derives its power to regulate business from the Commerce Clause of the United States Constitution.

Business and the Constitution The Commerce Clause says Congress has the power to regulate commerce “among the several states,” meaning the federal government has the power to regulate interstate commerce.

Business and the Constitution Because the U.S. Supreme Court gradually enlarged the scope of the government’s power to regulate business, the federal government can regulate any business activity that affects interstate commerce.

Pre-Learning Question What are securities?

Securities Regulation After the stock market crash of 1929, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934.

Securities Regulation The Securities Act defines a security as a money investment that seeks to make a profit solely because of another’s efforts.

Securities Regulation A security could be corporate stocks interests in savings and loans interests in racehorses or sports teams the sale of coins

Securities Regulation The Securities Exchange Act created the Securities and Exchange Commission (SEC) in 1934 to administer federal securities law.

Securities Regulation A crucial function of the agency is making sure that potential investors are informed about the nature of their investments. To accomplish this, companies must file a registration statement and a prospectus with the SEC.

Securities Regulation The registration statement is a general description of the securities and of the company making the offer.

Securities Regulation The prospectus contains a detailed view of the stock offering for potential investors.

Securities Legislation 30.1 Securities Legislation Securities Act of 1933 Regulates the issuance of new securities. Securities Exchange Act of 1934 Established the Securities and Exchange Commission; deals with subsequent trading in securities. Williams Act of 1968 Requires stricter reporting and procedural requirements

Pre-Learning Question Why has Congress enacted antitrust laws?

Antitrust Laws During the 1800s, many large corporations in the U.S. attempted to form monopolies.

Antitrust Laws One way to do this was to form a trust, in which the voting power of the stock of various companies would be transferred to a single trustee. Eventually, “trust” came to describe all monopolies.

Antitrust Laws Congress has since enacted several antitrust laws. Sherman Antitrust Act Clayton Act Federal Trade Commission Act Robinson-Patman Act

Sherman Antitrust Act Congress passed the Sherman Antitrust Act in 1890 to try to stop the formation of monopolies.

Clayton Act Congress passed the Clayton Act in 1914, which made specific practices illegal. One example is selling goods on the condition that a buyer will not buy products from the seller’s competition.

Federal Trade Commission Act This act, passed in 1914, was designed to protect businesses from the wrongful acts of other businesses. It stated, “Unfair methods of competition in commerce are hereby declared unlawful.”

Robinson-Patman Act This act is an amendment to the Clayton Act and deals with pricing discrimination as well as requires all sellers to treat all buyers equally.

Later Amendments The Federal Trade Commission Act was amended in 1938 and 1975. The latest amendments provide protection to consumers as well as business people.

Antitrust Legislation 30.1 Antitrust Legislation Sherman Antitrust Act of 1914 Prohibits contracts and combinations in restraint of trade; also prohibits monopolies, attempts to monopolize, and conspiracies to monopolize. Clayton Antitrust Act of 1914 Prohibits specific practices such as tying agreements and interlocking directorates. Federal Trade Commission Act of 1914 Established the Federal Trade Commission; promotes free and fair competition, and prohibits unfair and misleading practices. Robinson-Patman Act of 1936 Deals with product pricing; advertising and promotional allowances.

Name the acts described below. This law was enacted by Congress to try to stop the formation of monopolies.

ANSWER The Sherman Antitrust Act.

This act created the Securities and Exchange Commission to administer federal securities law.

ANSWER The Securities Exchange Act.

In general, this act requires sellers to treat all buyers equally.

ANSWER The Robinson-Patman Act.

Pre-Learning Question What are some other ways government regulates corporate activities?

Other Forms of Regulation The government also regulates the impact that corporate activities have on energy conservation and environmental protection.

Energy Regulation The energy crisis of the 1970s brought about the creation of several federal agencies. Department of Energy The Federal Energy Regulatory Commission The Nuclear Regulatory Commission

Federal Energy Regulatory Commission The Federal Energy Regulatory Commission (FERC) controls the wholesale price of natural gas and electricity sold for use in interstate commerce.

Nuclear Regulatory Commission The Energy Reorganization Act created the Nuclear Regulatory Commission (NRC), which regulates the licensing, constructing, and opening of nuclear reactors.

Environmental Protection Regulation The Environmental Protection Agency (EPA) is responsible for implementing the Environmental Policy Act, as well as other environmental laws.

National Environmental Policy Act Congress passed the National Environmental Policy Act in 1969 to establish a national program to fight pollution and clean up the environment.

Environmental Protection Agency In 1970, the EPA received the authority to administer all major federal antipollution programs dealing with air, sold waste, toxic substances, and pesticides.

Reviewing What You Learned Section 30.1 Assessment Reviewing What You Learned What is the source of the federal government’s power to regulate business?

Reviewing What You Learned Answer Section 30.1 Assessment Reviewing What You Learned Answer The Commerce Clause of the U.S. Constitution. The Commerce Clause states that Congress has the power to regulate commerce, “among the several states.”

Reviewing What You Learned Section 30.1 Assessment Reviewing What You Learned What are the two statutes that regulate the sale of securities?

Reviewing What You Learned Answer Section 30.1 Assessment Reviewing What You Learned Answer Securities Act of 1933 and the Securities Exchange Act of 1934.

Reviewing What You Learned Section 30.1 Assessment Reviewing What You Learned What are the statues that regulate antitrust activities?

Reviewing What You Learned Answer Section 30.1 Assessment Reviewing What You Learned Answer The Sherman Antitrust Act, the Clayton Act, the Federal Trade Commission Act, and the Robinson-Patman Act.

Reviewing What You Learned Section 30.1 Assessment Reviewing What You Learned What are the statutes that regulate energy and the environment?

Reviewing What You Learned Answer Section 30.1 Assessment Reviewing What You Learned Answer Among the acts that regulate energy and the environment are the Energy Reorganization Act and the Environmental Policy Act.

Critical Thinking Activity Government Regulation Section 30.1 Assessment Critical Thinking Activity Government Regulation What justifications can you give for the federal government becoming extensively involved in the regulation of energy and the environment?

Critical Thinking Activity Answer Government Regulation Section 30.1 Assessment Critical Thinking Activity Answer Government Regulation Answers will vary but should include that two justifications are the energy crisis of the 1970s and the need to control pollution.

Legal Skills in Action Responsibilities of the SEC Section 30.1 Assessment Legal Skills in Action Responsibilities of the SEC Your grandfather is thinking about investing part of his savings in a new corporation that is about to place its stock for sale on the stock exchange.

Legal Skills in Action Responsibilities of the SEC Section 30.1 Assessment Legal Skills in Action Responsibilities of the SEC Write him an e-mail message in which you explain the responsibilities of the Securities and Exchange Commission.

Legal Skills in Action Responsibilities of the SEC Section 30.1 Assessment Legal Skills in Action Responsibilities of the SEC Make certain to mention the purpose and nature of a registration statement, as well as the purposes of a prospectus.

Legal Skills in Action Answer Section 30.1 Assessment Legal Skills in Action Answer Responsibilities of the SEC E-mails should include that the SEC is responsible for making sure that potential investors are informed about the nature of their investments;

Legal Skills in Action Answer Section 30.1 Assessment Legal Skills in Action Answer Responsibilities of the SEC that the registration statement is a general description of the securities and of the company making the offer; and that his prospectus will contain a detailed view of his potential stock.

End of Section 30.1