Chapter 7:

Equity
management
What is EQUITY
MANAGEMENT?
- Equity management is the GENERAL
management of the outcome of an GOAL:
entity’s assets without factoring for to maximize and grow the
liabilities. amount of equity that is
already available as well as
avoid any foreseeable
- It refers to the decisions made A key goal ofrisks.
the treasurer of a
regarding that equity. public company is to have its
securities registered, so that it can
be more easily sell the securities,
Equity = Assets - Liabilities and so that investors can freely
trade them.
EQUITY
MANAGEMEN
How to register a corporation in sec
T and pse
STOCK
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
 SEC COMPANY
REGISTRATION SYSTEM
- is a full automation and online pre- • Online Verification of Company Name
processing of corporations and
partnerships, licensing of foreign
corporations, amendments of the articles
of incorporation and other corporate
applications requiring SEC approval.
• Online Appeal for Disallowed Proposed Name
• Online Fill-out of Articles of Incorporation (AI) and
By-laws (BL);
With Built-in Validation in the Pre-form and In-
form Data Encoding;
• Online Submission thru Uploading of Documents
for Internal Processing/Evaluation;
• Online Issuance of Deficiencies on
Submitted/Uploaded Application;
• Online Assessment of Filing Fees;
• Online Payment of Fees.
Stock registration
- If a treasurer wants to sell stocks
investors that in turn can be
immediately traded by investors, then A key factor in preparation of Form S-
its necessary to file a registration 1 is whether the company can
statement with the Securities and incorporate a number of required items
Exchange Commission (SEC) by referencing them in the form, which
can save a great deal of work.
-This form is default registration form
to be used if no registration forms or
exemptions from registration are
applicable.
 Form s-1
Main informational contents of the 10. Description of Securities to be
Form S-1 registered
11. Interests of named experts and counsel
1. Forepart of the registration statement 12. Information with respect to the
2. Summary Information registrant
3. Risk factors 13. Mayerial changes
4. Ratio of Earnings to fixed charges 14. Other expenses of issuance and
distribution
5. Use of proceeds
15. Indemnification of directors and
6. Determination of offering price
officers
7. Dilution
16. Recent sales of unregistered securities
8. Selling Security
17. Exhibits and financial statement
9. Plan of distribution schedules
 SHELF
REGISTRATION
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 requirements:
1. It is organized within and has principal 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.

If a company has an aggregate
market value of common equity
held by non-affiliates of less than
$75 million, it can still use Form S
- 3, provided that:
FORM S-3
1. The aggregate market value of securities sold by
the company during the 12 months prior to the
Form S - 3 filing is no more than 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.
Declaring a registration statement effective
Registration statement
- Documents that is filed to SEC PROBL
declaring the intent of the entity to
offer shares of its stock to the EM?Obtaining 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
 Exemptions from stock registration
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
 Exemptions from stock registration
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 Exchange Act.
Regulation d
The issuing company is not allowed any form of
general solicitation
Regulation D offering may span a number of months
 ACCOUNTING FOR STOCK SALES
Par value
The minimum price below
which the stock cannot be
sold
Original Intent
was to ensure that a residual amount of
funding was contributed to the
company, and which could not be
removed from it until dissolution of the
corporate entity
If an investor purchases a share of stock at
a price greater than its par value, the
difference is credited to an additional paid
- in capital account.
For example, if an investor buys one share of common
stock at a price of $82, and the stock’s par value is $1,
then the entry would be:
Debit Credit
Cash $82
Common stock — par value $1
Common stock- 81
additional paid - in capital
 Equity-related controls

GENERAL STOCK SALE CONTROLS

1. Verify available authorized shares
2. Verify board authorization
3. Have due diligence officer review all SEC filings
There are a number of controls that
4. Verify contents of security authorization letter
should be used during the 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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 Equity-related
POLICIES
The policies described apply to a
POLICIES SPECIFIC TO company’s use of the Regulation A or
REGULATION A STOCK SALES D exemptions, and so are only needed
A company will find itself at significant if the treasurer expects to issue stock
risk of having a Regulation A offering under either exemption.
not qualified by the SEC if it either
employs or is owned by an individual
with an objectionable background A POLICIES SPECIFIC TO
company will find itself at significant REGULATION A STOCK
risk of having a Regulation A offering SALES
not qualified by the SEC if it either
employs or is owned by an individual A key part of Regulation D is that
with an objectionable background. the sale of unregistered securities
can only be to accredited investors.
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 Equity-related
PROCEDURES
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!