Voluntary Dissolution

• Shareholders can initiate dissolution by a unanimous vote to dissolve.

• Or, the Board can initiate by submitting a proposal to the shareholders for a vote at the annual shareholder meeting or specially-called meeting.

• Board files dated articles of dissolution -- this date is the date of dissolution.

• Corporation must notify its creditors and establish a date within 120 days of dissolution by which all claims are to be paid.

Involuntary Dissolution

• Shareholders can initiate dissolution proceedings if the corporation is deadlocked.

• State can dissolve corporation if:

  • Fails to pay taxes.

  • Fails to file annual report.

  • Fails to designate registered agent for service.

  • Secured its charter through fraud.

  • Abused its corporate power.

  • Violated criminal laws.

  • Failed to commence business operations.

  • Abandoned operations before start-up.

• Court can dissolve if:

  • Board is deadlocked and irreparable damage to corporation will ensue.

  • Mismanagement.

  • Minority shareholder is “frozen out” or oppressed.

Liquidation

• Voluntary Dissolution.

  • Board liquidates and acts as trustees of assets.

  • Court will appoint a receiver if:

    • Board refuses; or

    • Creditors want a receiver.

• Involuntary Dissolution.

  • Court appoints receiver.

Securities Law and Corporate Governance.

§ 1: The SEC

• The Securities and Exchange Commission is an independent federal regulatory agency that enforces federal securities laws. The SEC :

  • Regulates disclosure of facts in offerings made through national securities exchanges (e.g., NASDAQ, NYSE).

  • Investigates and prosecutes securities fraud.

  • Registration and regulation of securities brokers, dealers and investment advisors.

Expanding Regulatory Powers of the SEC

• Securities Enforcement Remedies and Penny Stock Reform Act of 1990.

• Securities Acts Amendments of 1990.

• Market Reform Act of 1990.

• National Securities Markets Improvement Act of 1996.

• The Sarbanes-Oxley Act of 2002.

§ 2: The Securities Act of 1933

• Securities Act of 1933 regulates solicitation, buying and selling of securities: stocks and bonds.

• In SEC v. Howey (1946), the U.S. Supreme Court held that a security exists in any transaction in which a person: (1) invests (2) in a common enterprise (3) reasonably expecting profits (4) derived primarily from others’ managerial or entrepreneurial efforts.

Registration Statement

• If a security does not qualify for an exemption under §5 of the Securities Act of 1933, the security must be registered with the SEC and state securities agencies before offered to the public.

• Corporation must file a registration statement and prospectus with the SEC. Prospectus is later distributed to investors.

Contents of Registration Statement

• Description of the significant provisions of the registrant’s “offering” and how the registrant intends to use the proceeds from the sale.

• Description of the registrant’s properties and business.

• Description of the management of the registrant, remuneration, pension, stock offerings, executive interests and compensation.

• Financial statement certified by an independent accounting firm.

• Description of pending lawsuits.

• “Red Herring” prospectus.

• Tombstone ads.

Exempt Securities

• Bank securities sold before 1933.

• Commercial paper if maturity date does not exceed 9 months.

• Charitable organization securities.

• Securities issued to existing securities holders resulting from reorganization, bankruptcy.

• Securities issued to finance railroad equipment.

• Any insurance, endowment, annuity contract or government-issued securities.

• Securities issued by banks, savings and loan association, farmers' cooperatives.

• Regulation A, small offering up to $5 million in a 12 month period to “test the waters”; but requires a circular.

• Securities issued to existing securities holders, stock split, dividend (really a transaction exemption).

Exempt Transactions

• Small “Reg D” Offerings.

  • Rule 504: up to $1M during 12 months to accredited investors only.

  • Rule 504a.

  • Rule 505: up to $5M during 12 months to both accredited and unaccredited investors.

  • Rule 506: unlimited if no general solicitation and notice to SEC. Max of 35 unaccredited investors.

  • Section 4(6): up to $5 million to accredited investors.

  • Rule 147 Intrastate Sales.

  • Broker/Dealer Transactions.

  • Casual Sales .

  • Resales of Restricted Securities by “Control Persons.”

  • Rule 144 and 144(a).