Question

CASE 1:

Two former roommates from college contact you about an opportunity to make big money. Their idea is to start a business to market a new video game system (the computer science major developed the software, the engineer created the hardware). They estimate it will take $5 million to $10 million to begin production, and they want to raise money by selling shares in the company to investors. They think their product is superior,and they are aware of the time factor. They want to get started as soon as possible. Your field of expertise is securities marketing.

1. Can the three of you just begin advertising for investors?
2. What steps must be followed to comply with the law?
3. How much time is needed before potential investors can be approached legally?

CASE 2:

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.

Discuss the following questions:

1. What requirements of the Sarbanes-Oxley Act will you have to meet?
2. What is involved in offering a new company's stock for sale to the public?
3. Are there aspects of doing business as a publicly traded company that are different from operating as a partnership?

Answer 1

CASE - I

Answer:1

No, we three of us cannot just begin advertising for investors, because we need to have ready all the legal formalities for our proposed firm and it need to be registered at the government office and should be approved. We need to have the confirm approved business firm along with all the legal formalities and infrastructural set-ups. Once we are through with government registration and approval, then we can begin the advertisement for investors.

Answer 2:

Following steps to be followed to comply with the law as below

• Forming of the firm and registration in the applicable government location.
• Receipt of approval from the government authorities.
• Meeting all the clauses applicable for the startup of the firm in the region.
• We all three of us need to have the partnership contract sign off for the firms.
• We need to follow the corporate laws and procedures for our firms.
• We need to develop the business plan and base budget for the project.
• We need to seek bank security and current account opening for the firm.
• Get the tax ID for the firms based on business nature.
• Develop the website for the firm

Answer 3:

Time needed before potential investors can be approached legally is based on the approval of the firm legally and receipt of registration, approval and license for the business along with the tax ID. Once the legal formalities are completed then one can approach to Investors for fund planning.