The Model Business Corporation Act, potentially following suit with the rest of ever-changing 2016, has acquired proposed notable changes through provisional amendments by its Official Committee. Some of these changes model company-friendly Delaware’s legal structure, which can only help to attract companies to incorporate within states that choose to adopt such changes. Although Wisconsin has modeled its own state corporation statutes based on the Act under Chapter 180 of the state legislature, the addition of these new amendments could help attract local companies to incorporate within the state.

First, the Committee has proposed adoption of the addition of subchapter E to chapter one of the Act, mirroring the Delaware General Corporations Law’s 2014 amendments. The subchapter permits the ratification of defective corporate actions, including actions in connection with the issuance of shares. It also provides for retroactive validity of subsequent actions taken in reliance on the validity of the defective action upon its ratification. If Wisconsin adopts this subchapter, actions taken by local corporations won’t be hindered and found void based on, for example, a greater issuance of shares than allowed by the articles of incorporation. This malleability gives companies assurance that certain vote-based corporate actions have a safety net from being deemed void instantly, ensuring a remedy for defective corporate actions.

Next the Committee has proposed changes to sections 2.02 and 8.70 of the Act, allowing corporations to include a provision within its articles limiting or eliminating the duty of a director or officer to become involved with a corporate opportunity without informing the corporation, which typically falls under a director’s or officer’s duty of loyalty. These provisions would give the corporation control over the liability imposed upon its directors and/or officers upon involvement in corporate opportunities, shielding them from said liability. It would also allow directors and officers to engage in such opportunities against the wishes of the company. These provisions have their strengths and weaknesses, but the advantage surrounds the control given to the corporation.

Author’s Note: This post is taking an economic and investor approach to The Securities Act of 1933. This is not to ignore the time and monetary cost of information. It is merely a critique of one portion of a larger regulatory scheme and its effects.

The purpose of the 1933 Securities Act was to protect investors by providing them with information in order to make a sound investment decision. Albeit not articulated at the time of The Securities Act’s inception, the modern application of the Securities Act reflects the Capital Asset Pricing Model and the Efficient Capital Market Hypothesis. Roughly, the efficient capital market hypothesis assumes that the market and the stock prices are a reflection of information available about that security.(1)  As the original standards for reporting requirements and disclosure requirements of the Securities Act have loosened in recent years, have we cheated investors? Are investors not being fairly compensated or informed for the risks they have assumed?

When a security becomes available to the public for the first time, the SEC requires certain disclosures through its registration statement. The registration statement provides basic information about the company and basic financial information. During this process, there are underwriters who analyze and then provide the first price for the security. They will consider the projections of the company, the segment in which it operates, as well as general global and national market conditions. Their ultimate goal, however, is to sell the securities. The underwriters receive a percentage of the final sales price, which incentivizes them to have a higher price than potential fair market value. The SEC helps to regulate this process and civil liabilities and administrative action can provide a disincentive to be overly optimistic about the security’s prospects.

Since 2005, there has been a movement towards reducing the information required from issuers prior to offering securities to the public.