Initial Public Offering
What is the key element of moving from a privately held corporation to a publicly traded corporation? You must have something to trade . . . Stock. Stock is a form of a security which is an investment that one makes where the investor is completely dependent on the efforts of another person. There are many benefits to going forward with an IPO. Transitioning from a closely held corporation to a publicly traded corporation can allow the early investors to capitalize financially on their investment. An IPO may also inject much needed capital into the corporation. CB at 800. The sale of securities is regulated by the Securities Exchange Commission (SEC). The SEC created specific laws with the 1933 Act in order to protect investors from fraud, while the 1934 Act provided a private cause of action. CB at 729. For a corporation to sell its stock shares publicly, it must be registered or have an exemption from registration. In registering, the corporation must fil...
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...s stock if those insiders are in possession of material, nonpublic information”. CB at 827. Misleading statements fall under the scope of 10b-5 as related in Basic, Inc. v. Levinson at 762. When Basic, Inc was being acquired, it repeatedly denied such reports of such acquisition. A shareholder relying on such denials sold their stock. A corporation is should not use silence as a way to deceive, however, it is fully acceptable to say “no comment”.
A corporation must also be mindful of regulation by the Sabanes-Oxley Act of 2002 (SOX). SOX was passed to increase disclosure by publicly traded companies. SOX § 302 requires that CEO’s and CFO’s must sign off on the accuracy of financials. §307, places additional responsibilities on a corporation’s attorney to take action when they become aware of violations. Also, SOX disallows publicly traded companies from
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