Under modern U.S. securities law, corporations can be held liable if they make one of a number of mistakes. Under SEC Rule 10B-5, companies can be held liable if fraud is committed in connection with the purchase or sale of any security. Similarly, insider trading in which individuals such as corporate directors and officers use knowledge about the firm to buy or sell stocks is also a source of liability. Third, officers, directors, and certain large stockholders are required to file reports with the SEC concerning their ownership and trading of the corporation's securities. A failure to do so constitutes inappropriate and illegal behavior. Companies are, fourth, liable if they make any untrue statement of a material fact or omit to state a material fact necessary to avoid misleading potential purchasers. Finally, though most securities can be resold without registration, most securities must be registered in order to be transferred. A failure to do so can lead to criminal and civil charges against the firm (Clarkson, Miller, Jentz, and Cross, 790-795).
The rules impacting upon companies in this context emanate from the Securities Act of 1933, the Securities Exchange Act of 1934, and the Sarbanes-Oxley Act of 2002. This final Act attempts to increase corporate accountability by imposing stricter disclosure requirements and harsher penalties for violations of securities law.
Unit 7 Discussion Question 2
Sole proprietorships are the simplest form of business ownership. Relatively simple records must be kept, but all income is subject to taxation and the proprietor alone bears the burden of any losses or liabilities incurred in the business enterprise, which dissolves upon the death of the owner (Clarkson, et al, 697). Franchises can operate as an independent business entity and these mechanisms are protected by federal law. Taxation on the franchise's earnings are paid by the fran
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