Congress’s experiment in using the federal securities laws to address social concerns without any consideration of materiality has failed to achieve its stated objective. In the recent past, Congress has abandoned strict adherence to this bedrock materiality principle and sought to use the federal securities laws to address issues irrelevant to investment or voting decisions. The SEC and public companies – and, ultimately, the investing public – have borne enormous costs and burdens in adopting, complying with and monitoring these new types of requirements. When a company becomes publicly held, the SEC requires it to reveal sensitive information on an ongoing basis, including business strategies, financial results, and executive salaries and compensation arrangements. Management in publicly held companies is generally compensated at a higher level than management of private companies. The goal of financial reporting is to provide accurate and transparent financial statements to the shareholders of a firm and interested others.
It is also important to note that these requirements apply only to U. S. public companies. The thousands of large and small companies that have not accessed the U. S. public capital markets are not required to make these disclosures. This highlights the arbitrary, incompatible and distortive impact of the requirements, underscoring that pursuing a set of laws specifically designed for one purpose to instead achieve a completely unrelated objective is ineffective. Instead of benefitting investors, these mandates require expending extensive SEC resources proposing, adopting and implementing regulations that distract from its core statutory objectives, including investor protection. Compliance costs for public companies and their shareholders have been extraordinary in many cases. Investors also receive information that is irrelevant and distracting to their investment and voting decisions.
As a private company, you may not be able to attract top talent through benefits like stock incentives, says Mike Ser, an active trader, trading coach and entrepreneur with more than 16 years of trading experience. He is the co-founder, along with Andy Man, of Ser Man Traders, a training program for professional traders.
Another con is that as a private company, you can’t use your stock as currency to acquire your competitors or other companies. “If you’re a private company, it’s more of a challenge as you either have to have cash or borrow debt to acquire companies, ” he says. “The markets are littered with small companies who really didn’t have enough to sustain a public offering. ” Depending on the industry you’re in, this can happen to companies that post several hundred million in annual sales, he says. You need to have a strong following so the company’s stock will trade properly. “Many of these situations end up as “penny stocks” and face delisting from the exchange, ” he says. There is also a certain perceived legitimacy in being public, Chen says.
Whether those financial statements are provided by a publicly traded firm or by a company whose stocks is not listed, the information needs of investors are similar. Each was a large, publicly traded business in the late 1990’s, and the financial reporting of each entity included ethical violations. Any prospect of significant shareholder value for these companies has long since faded. Shareholders lost millions of dollars because of mismanagement and dishonesty in the companies. It will no doubt be fun to brag about it to everyone you know, but it might not be as lucrative as you think, given the costs of the IPO itself and the increased financial reporting requirements. You’ll lose some control over the company to shareholders who want a say in the business and to the ongoing need to keep both your company’s performance and the public’s perception high so the stock price doesn’t tank.
Being public will make it easier for you to do business with others. Securing financing will also be easier, ” he says, since the money companies raise from going public usually shores up the balance sheet. Potential investors and business partners may feel more comfortable working with you since your company information will be filed with the Securities and Exchange Commission and available for all to see. In addition , you can also use your company stock as currency, Chen says.
Due to their capacity to adjust to different enterprise environments, management analysts make a median annual wage of $82, 450 inside the US and in between 2016 and 2026, typically the BLS expects a 16 percent increase in typically the number of available supervision analyst jobs. Deviation coming from the principle of substantialness is costly to open public companies, fails to assist the interests of buyers and distracts the SECURITIES AND EXCHANGE COMMISSION’S from its core quest. In the future, The legislature should avoid repeating typically the mistake of the government securities laws to deal with alleged societal concerns. More, Congress should promptly shift to repeal statutory conditions previously adopted under typically the federal securities laws that have raised these concerns.