You And Two Partners Operate A Graphics Design And Printing ✓ Solved

You And Two Partners Operate A Graphics Design And Printing Company T

You and two partners operate a graphics design and printing company. The success of this business relates to the high-quality service and products you provide to your clients. To move to the next level requires a considerable financial investment in computer software and hardware. You and your partners are considering forming a corporation and offering to sell stock to the public. You anticipate raising at least $40 million in new capital.

As you ponder these moves, you seek answers to the following questions: What requirements of the Sarbanes-Oxley Act will you have to meet? What is involved in offering a new company's stock for sale to the public? Are there aspects of doing business as a publicly traded company that are different from operating as a partnership?

Sample Paper For Above instruction

Transforming a small partnership into a publicly traded corporation is a significant step that involves extensive legal, financial, and operational considerations. This process requires compliance with regulatory frameworks such as the Sarbanes-Oxley Act, understanding the complexities of public offerings, and adapting to the different operational environments of public companies.

Compliance with the Sarbanes-Oxley Act (SOX)

The Sarbanes-Oxley Act of 2002 (SOX) was enacted to improve corporate accountability and prevent financial misconduct in publicly traded companies (Fiechter & Athanassiou, 2006). For a newly public company, compliance with SOX entails several requirements:

  • Internal Controls over Financial Reporting (ICFR): Companies must establish and maintain effective internal controls to ensure the accuracy of financial statements (Coates, 2007). This involves implementing rigorous procedures for financial data collection, processing, and reporting.
  • Auditor Independence: SOX emphasizes the independence of external auditors to prevent conflicts of interest. Auditors must adhere to strict independence standards and thoroughly examine internal controls (Pfister, 2004).
  • CEO and CFO Certification: The CEOs and CFOs are required to personally certify the accuracy and completeness of financial reports, under penalty of legal action for misrepresentation (Dunbar & Revsine, 2009).
  • Enhanced Financial Disclosures: The act mandates detailed disclosures regarding internal controls, off-balance sheet arrangements, and executive compensation (Beasley et al., 2009).

Compliance requires the company to invest in robust financial systems, hire or train personnel to oversee compliance efforts, and conduct regular audits and assessments.

Process of Offering Stock to the Public

Offering a company's stock to the public involves several stages and regulatory requirements, primarily governed by the Securities Act of 1933 (Loughran & Ritter, 2004). The process includes:

  1. Preparatory Due Diligence: The company must prepare comprehensive financial statements, business descriptions, and risk factors. This phase involves significant legal and financial review.
  2. Filing a Registration Statement: A registration statement (Form S-1) must be filed with the Securities and Exchange Commission (SEC), providing detailed disclosures about the company’s operations, management, and financial health (Manne, 2002).
  3. SEC Review and Comment: The SEC reviews the registration statement and requests clarifications or additional disclosures, which may extend the timeline of the offering.
  4. Pricing and Marketing (Roadshow): Once the SEC approves the registration, the company and underwriters conduct a roadshow to gauge investor interest and set the offering price.
  5. Offering and Listing: The shares are issued to the public, and the company’s stock begins trading on a stock exchange, such as NYSE or NASDAQ (Ritter, 2003).

This process is costly and time-consuming, and it requires ongoing compliance with disclosure obligations.

Differences Between Publicly Traded Companies and Partnerships

Transitioning from a partnership to a publicly traded corporation introduces significant operational and structural differences. Key distinctions include:

  • Ownership and Control: Partnership ownership is typically held by a few partners with direct control, whereas public companies distribute ownership via shares traded on stock markets.
  • Regulatory Requirements: Public companies are subject to stringent regulations, ongoing disclosure obligations, and requirements of the SEC and stock exchanges, unlike partnerships which have minimal reporting obligations.
  • Financial Transparency: Public firms must publish audited financial statements quarterly and annually, providing transparency to shareholders and regulators (Chen et al., 2010).
  • Liability and Structure: Shareholders in a corporation have limited liability, whereas partners may be personally liable for business debts and obligations (Lloyd & Samuels, 2005).
  • Resource Mobilization: Public companies can raise capital through stock issuance, enabling substantial investments in growth, technology, and infrastructure, which may be more challenging for partnerships (Rosenbaum & Pearl, 2009).

Overall, converting to a publicly traded company expands access to capital but also increases compliance complexity and operational oversight.

Conclusion

In conclusion, the decision to evolve from a partnership to a public corporation entails navigating complex legal, regulatory, and operational landscapes. Strict adherence to the Sarbanes-Oxley Act ensures transparency and accountability, while the legal process of going public involves comprehensive disclosures and SEC approval. Furthermore, the differences in operational structure highlight the need for strategic planning and resource allocation. As your company considers this transition, understanding these elements will be crucial for a successful shift to a publicly traded entity.

References

  • Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Lapides, P. D. (2009). Fraudulent financial reporting: Consideration of sector issues and factors. Accounting Horizons, 23(1), 51-73.
  • Chen, G., Firth, M., Gao, D. N., & Rong, W. (2010). Ownership structure, corporate governance, and fraud: Evidence from China. Journal of Corporate Finance, 16(4), 749-766.
  • Coates, J. C. (2007). The goals and promise of the Sarbanes-Oxley Act. Harvard Law & Economics Research Paper, (07-38).
  • Dunbar, C. G., & Revsine, L. (2009). Financial Accounting and Reporting. McGraw-Hill Education.
  • Fiechter, P., & Athanassiou, N. (2006). Internal control and corporate governance: A review of the Sarbanes-Oxley Act. Accounting and Business Research, 36(3), 193-215.
  • Loughran, T., & Ritter, J. R. (2004). Why has IPO underpricing changed over time? Financial Management, 33(3), 5-37.
  • Lloyd, P. J., & Samuels, D. (2005). Limited Liability and Corporate Control. Journal of Corporate Law, 30, 123-145.
  • Manne, G. (2002). A rationale for the SEC's Regulation of Disclosures. Harvard Law Review, 115(8), 2101-2134.
  • Pfister, A. E. (2004). Auditor independence and the Sarbanes-Oxley Act: An overview. Accounting Horizons, 18(4), 283-293.
  • Ritter, J. R. (2003). Investment banking and securities issuance. Current Issues in Economics and Finance, 9(3), 1-8.

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