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BLAW 3310 CH.18 REVIEW | Comprehensive Questions and Answers Latest Updated
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Corporate finance - the business function of obtaining funds for a company and managing them to accomplish the company's objectives blue sky laws - State laws that regulate the offering and sale of securities for the protection of the public. equity financing - Raising funds through the sale of company stock. a purchaser of shares of stock gains an ownership interest in the corporation. debt financing - obtained by borrowing money from large lenders, such as banks and insurance companies securities - stocks and bonds Securities and Exchange Commission (SEC) - the agency charged with enforcing and administering federal securities laws. An independent agency that has five members appointed by the president for five-year terms. Howey test - a test to determine when an investment is a security for the purposes of federal regulation. Howey test elements: - An investment is classified as a security for purpose of federal regulation if it contains four basic elements:
- An investment of money
- In a common enterprise
- With an expectation of profits
- Generated by the efforts of persons other than the investors SEC disclosure requirements - Filing a registration statement with the SEC
registration statement for a new security offering requires: - prospectus and detailed information required by the SEC. prospectus - (called Schedule A) condenses the longer registration statement provided to the SEC and helps investors evaluate a security. SEC review and approval - The SEC does not rule on the merit of an offering; that is, it does not give any opinion about the likelihood of success of a proposed business. Registration comes into effect 20 days after it is filed. exemptions from registration - - private placement
- rule 144A
- regulation D
- WKSI's
- crowdfunding private placement - primary offerings in which shares are sold directly to a small group of institutional or wealthy investors rule 144A - exempts U.S. and foreign security issuers from registration requirements for the sale of bonds and stocks to institutions with a portfolio of at least $100 million in securities regulation D - explain what qualifies as a private placement exemption; Such offerings may be made only to accredited investors; most common = Small Corporate Offering Registration. Companies may issue stock directly to accredited investors, and according to Rule 504, a company may raise up to $ million within 12 month WKSIs - well-known seasoned issuers; securities issuers that have offered at least $1 billion in debt securities previously or have a public-equity market capitalization of at least $700 million. crowdfunding - The idea is to make equity funding more realistic for small businesses due to the high cost of an initial public offering registration and to let investors who do not meet the traditional definition of being accredited have an opportunity to invest in new small companies.
churning - occurs when a broker who has control of a client's account buys and sells an excessive amount of stock to make money from the commissions earned on transactions. scalping - when a professional buys stock for personal benefit, then urges investors to buy the stock so that the price rises to the benefit of the professional. What is a stock option plan? - plan that gives employees the right to purchase a fixed number of shares of company stock at a specified price for a limited period of time What is strike price? - a fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. How to compute profits on exercise of stock options? - subtract your basis in the stock from the strike price of the option When was Securities Act enacted and why? - 1933; regulates the public offerings of securities when they are first sold. The Act requires that investors be given material information about new securities to try to prevent misrepresentation in the sale of securities.
