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CHAPTER 11 PUBLIC CORPORATIONS AND SECURITIES REGULATIONS
© 2013 Delmar Cengage Learning
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The Public Corporation
A public corporation has it shares traded on a national securities exchange or in a market maintained by one or more members of a national securities association. The first offering of a corporation’s securities to the public is referred to as an initial public offering (IPO). The decision to offer a corporation’s shares to the public is usually made by the board of directors and shareholders with the advice of their attorneys and accountants. Advantage to a corporation that offers its shares to the public is the increase in available capital as shares are sold. Disadvantages to taking a corporation public: The loss of control by current shareholders Increased time and expense to comply with securities regulations imposed on public corporations. © 2013 Delmar Cengage Learning
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Securities and Securities Markets
DEFINITIONS Markets Public corporations that trade their shares on one of the national exchanges that are regulated by the Securities and Exchange Commission or over the counter Exchanges An organization, association, or group that provides or maintains a marketplace where securities can be bought and sold Include the NASDAQ Stock Market LLC and the New York Stock Exchange Over-the-Counter Markets Trading for the stock of companies that do not meet the listing requirements of the major stock exchanges © 2013 Delmar Cengage Learning
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The Securities and Exchange Commission
SECURITIES AND EXCHANGE COMMISSION (SEC) Established in 1934 to promote stability in the markets and protect investors Headed by five presidentially appointed commissioners Power to enforce the Securities Act of 1933 and the Securities Exchange Act of 1934 © 2013 Delmar Cengage Learning
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Securities Offerings under the Securities Act of 1933
Securities Registration Any securities sold to the public through interstate commerce must be registered under the Securities Act, unless otherwise exempted. Prospectus requirements Any securities sold through interstate commerce must be sold pursuant to a prospectus that meets the requirements of the Securities Act. © 2013 Delmar Cengage Learning
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Securities Offerings under the Securities Act of 1933
EDGAR The SEC’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) EDGAR includes registration statements, annual reports, quarterly reports, and other disclosure documents filed with the SEC. All public companies are required to submit certain documents to the SEC electronically for inclusion in the EDGAR database. © 2013 Delmar Cengage Learning
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Exemptions from the Registration Requirements of the Securities Act
EXEMPTIONS FROM REGISTRATION REQUIREMENTS There are exemptions from the registration requirements of the Securities Act of 1933 due to: The type of the securities being offered (e.g., securities regulated by banking or insurance commissions); or The specific transaction involving the securities (e.g., offerings to small groups of informed investors). © 2013 Delmar Cengage Learning
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Antifraud Provisions of the Securities Act
Section 11 Individuals signing or providing information for the registration statement are personally responsible for the truthfulness and accuracy of the information they provide. Section 12 The sale of securities, including prospectuses and oral statements, must not include any false or misleading statements of a material fact. Section 17 This section prohibits fraudulent conduct with respect to the sale of, or an offer to sell, securities. © 2013 Delmar Cengage Learning
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Federal Regulations Under the Securities Exchange Act of 1934
REGISTRATION UNDER THE EXCHANGE ACT Nonexempt securities traded on a national securities exchange must be registered with that exchange. All U.S. exchanges must be registered with the SEC as a national securities exchange unless exempt due to a limited trading volume. © 2013 Delmar Cengage Learning
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Federal Regulations Under the Securities Exchange Act of 1934
Periodic Reporting Requirements Under the Securities Exchange Act of 1934 10-K Report—Annual report 10-Q Report—Quarterly report Form 8-K—When certain registration statement information changes © 2013 Delmar Cengage Learning
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Federal Regulations Under the Securities Exchange Act of 1934
Proxy Regulations Corporations subject to the registration requirements of the Exchange Act are also subject to the proxy requirements. Proxies and proxy statements must comply with Section 14(a) of the Exchange Act. They must be truthful, and they must contain the prescribed information. © 2013 Delmar Cengage Learning
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Federal Regulations Under the Securities Exchange Act of 1934
Annual Report to Shareholders Required financial statements and information A brief description of the corporation’s business Information relating to the corporation’s industry segments, products, operations, and sales Required information on the corporation’s directors and executive officers The market price of and dividends on registrant’s common equity and related security-holder matters © 2013 Delmar Cengage Learning
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Antifraud Provisions under the Exchange Act
Section 10(b) Prohibits fraud, manipulation, and insider trading for the purchase or sale of any registered security. Insider trading = acting on information not available to the public by: Buying or selling stock in the corporation; Taking unfair advantage of the uninformed investor. Section 16(b) Prohibits short-swing profits. © 2013 Delmar Cengage Learning
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The Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 was passed in 2002 in response to major corporate and accounting scandals involving several prominent corporations in 2000 and 2001. © 2013 Delmar Cengage Learning
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The Sarbanes-Oxley Act of 2002
Creation of the Public Accounting Oversight Board Officer certifications and internal controls Audit committee requirements Ban on loans to officers and directors Enhanced criminal penalties © 2013 Delmar Cengage Learning
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State Securities Regulation—Blue Sky Laws
Blue sky laws are state laws that regulate the sale of securities within the state. Blue sky laws are coordinated with federal securities regulations. Blue sky laws prohibit fraudulent activities connected with the offer, sale, and purchase of securities. © 2013 Delmar Cengage Learning
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State Regulation of Stock Offerings
Blue sky laws require the registration of securities of public corporations at the state level. Corporations that have filed a registration statement under the Securities Act may be required to register their securities by filing or by coordination. Registration by qualification is completed by corporations that are not required to file a registration statement under the Securities Act, but are required to register at the state level. There are many exemptions from registration available under blue sky laws. © 2013 Delmar Cengage Learning
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© 2013 Delmar Cengage Learning
The Paralegal’s Role Tasks Performed by Paralegals Working With Public Corporations and Securities Research securities laws and regulations Assist with initial public offerings Research blue sky laws Assist with blue sky filings Prepare and file 10-K and other periodic reports required by the SEC © 2013 Delmar Cengage Learning
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