Chapter 7:

Equity management
What is EQUITY MANAGEMENT?
- Equity management is the GENERAL GOAL:
management of the outcome of to maximize and grow
the amount of equity that
an entity’s assets without is already available as
factoring for liabilities. well as avoid any
foreseeable risks.
- It refers to the decisions made A key goal of the treasurer of a
regarding that equity. public company is to have its
securities registered, so that it
can be more easily sell the
Equity = Assets - Liabilities securities, and so that
investors can freely trade
them.
EQUITY MANAGEMENT
How to register a
corporation in sec and
STOCK
pse
EXEMPTIONS
REGISTRATIONFROM
STOCK REGISTRATION
ACCOUNTING FOR
STOCK SALES
EQUITY-RELATED
CONTROLS
EQUITY-
RELATED
EQUITY-RELATED
POLICIES
PROCEDURES
How to register a
corporation in sec and
pse
 - is a full automation and online pre- • Online Verification of Company Name
processing of corporations and • Online Appeal for Disallowed Proposed Name
• Online Fill-out of Articles of Incorporation (AI)
partnerships, licensing of foreign and By-laws (BL);
corporations, amendments of the With Built-in Validation in the Pre-form and In-
articles of incorporation and other form Data Encoding;
corporate applications requiring SEC • Online Submission thru Uploading of
approval. Documents for Internal Processing/Evaluation;
• Online Issuance of Deficiencies on
Submitted/Uploaded Application;
• Online Assessment of Filing Fees;
• Online Payment of Fees.
- If a treasurer wants to sell stocks
investors that in turn can be
immediately traded by investors, A key factor in preparation of Form
then its necessary to file a S-1 is whether the company can
registration statement with the incorporate a number of required
Securities and Exchange items by referencing them in the
form, which can save a great deal
Commission (SEC)
of work.
-This form is default registration
form to be used if no registration
forms or exemptions from
registration are applicable.
Main informational contents of the 10. Description of Securities to be
Form S-1 registered
11. Interests of named experts and
1. Forepart of the registration counsel
statement 12. Information with respect to the
2. Summary Information registrant
3. Risk factors 13. Mayerial changes
14. Other expenses of issuance and
4. Ratio of Earnings to fixed charges
distribution
5. Use of proceeds
15. Indemnification of directors and
6. Determination of offering price
officers
7. Dilution
16. Recent sales of unregistered
8. Selling Security securities
9. Plan of distribution 17. Exhibits and financial statement
schedules
Shelf registration is the registration of a new
issue of securities that can be filed with the
SEC up to three years in advance of the actual
distribution of such securities.

Form s-3
Form S - 3 allows a company to incorporate a
large amount of information into the form by
reference, which is generally not allowed in a
Form S - 1.
 FORM S-3
The Form S - 3 is restricted to
those companies that meet the
following eligibility 1. It is organized within and has principal
requirements: business operations within the United States
2. It already has a class of registered
securities, or has been meeting its periodic
reporting requirements to the SEC for at
least the past 12 months
3. It cannot have failed to pay dividends,
sinking fund installments, or defaulted on
scheduled debt or lease payments since the
end of the last fiscal year
4. The aggregate market value of the common
equity held by nonaffiliates of the company is
at least $75 million.
 FORM S-3
If a company has an aggregate
market value of common equity 1. The aggregate market value of securities
held by non-affiliates of less sold by the company during the 12 months
than $75 million, it can still use
prior to the Form S - 3 filing is no more than
Form S - 3, provided that:
one - third of the aggregate market value of
the voting and nonvoting common equity
held by its nonaffiliated investors.

2. It is not a shell company, and has not been

one for the past 12 months.

3. It has at least one class of common equity

securities listed on a national securities
exchange.
 Registration statement
- Documents that is filed to SEC PROBLEM?
declaring the intent of the entity to Obtaining the
offer shares of its stock to the “effective” status
general public.

- Reviewed by the SEC staff, once

declared effective, either the company or
those investors on whose behalf it is
registering the securities can initiate
selling activities
 Applies to smaller issuances, a smaller securities
issuance does not warrant a registration.

Regulation a Registration A allows exemption from registration

if the offering is no longer than $5 million per year.

Regulation d Advantages:
1. No limit on the number of investors, nor must
they pass any kind of qualification test
2. No restrictions on the resale of any securities
sold under the Registration; and
3. Absence of any periodic reporting
requirements
 Securities can only be sold under Regulation D to an
ACCREDITED INVESTOR

Regulation a The information that must be sent to accredited

investors as part of the financing is minimized if
the issuing company is already meeting its
financial reporting requirements under the
Regulation d Exchange Act.

The issuing company is not allowed any form of

general solicitation
Regulation D offering may span a number of
months
 ACCOUNTING FOR STOCK SALES
If an investor purchases a share of
stock at a price greater than its par
Par value value, the difference is credited to an
additional paid - in capital account.
The minimum price below
which the stock cannot be For example, if an investor buys one share of
sold common stock at a price of $82, and the stock’s
par value is $1, then the entry would be:
Original Intent
was to ensure that a residual Debit Credit
amount of funding was contributed Cash $82
to the company, and which could not Common stock — par value $1
be removed from it until dissolution Common stock- 81
of the corporate entity additional paid - in capital
 GENERAL STOCK SALE CONTROLS
1. Verify available authorized shares
2. Verify board authorization
3. Have due diligence officer review all SEC
There are a number of controls filings
that should be used during the 4. Verify contents of security authorization letter
process of selling equity to the
investment community.
Controls Specific to Regulation D Stock Sales
1. Review outgoing subscription agreement
2. Review received subscription agreement
3. Review investor qualification certificate
4. Verify cash receipt
5. Ensure that Form D is filed
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 The policies described apply to a
POLICIES SPECIFIC TO company’s use of the Regulation
REGULATION A STOCK SALES A or D exemptions, and so are
A company will find itself at only needed if the treasurer
significant risk of having a Regulation expects to issue stock under either
A offering not qualified by the SEC if exemption.
it either employs or is owned by an
individual with an objectionable POLICIES SPECIFIC TO
background A company will find itself REGULATION A STOCK
at significant risk of having a SALES
Regulation A offering not qualified by
the SEC if it either employs or is A key part of Regulation D is
owned by an individual with an that the sale of unregistered
objectionable background. securities can only be to
accredited investors.
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 There are 2 procedures:
• Describing the Process
flow for a stock sale under
the Regulation A exemption
• Describing a sale under
the Regulation D exemption

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Thank you!