Which of the following statements is CORRECT?
a. The corporate bylaws are a standard set of rules established by the state of incorporation. These rules are
identical for all corporations in the state, and their purpose is to ensure that the firm's managers run the firm in
accordance with state laws.
b. The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to
ensure that the
firm's managers run the firm in accordance with state laws. Procedures for electing corporate
directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the
number of directors are included in the corporate charter.
c. Companies must establish a home office, or domicile, in a particular state, and that state must be the one in
which most of their business (sales, manufacturing, and so forth) is conducted.
d. Attorney fees are generally
involved when a company develops its charter and bylaws, but since these
documents are voluntary, a new corporation can avoid these costs by deciding not to have either a charter or
bylaws.
e. The corporate charter is concerned with things like what business the company will engage in, whereas the
bylaws are concerned with things like procedures for electing the board of directors.
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In a primary market transaction, the corporation is the seller, and the transaction raises money for the corporation. Corporations engage in two types of primary market transactions: public offerings and private placements. A public offering, as the name suggests, involves selling securities to the general public, whereas a private placement is a negotiated sale involving a specific buyer.
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To learn more about the SEC, visit www.sec.gov.
By law, public offerings of debt and equity must be registered with the Securities and Exchange Commission (SEC). Registration requires the firm to disclose a great deal of information before selling any securities. The accounting, legal, and selling costs of public offerings can be considerable.
Partly to avoid the various regulatory requirements and the expense of public offerings, debt and equity are often sold privately to large financial institutions such as life insurance companies or mutual funds. Such private placements do not have to be registered with the SEC and do not require the involvement of underwriters (investment banks that specialize in selling securities to the public).
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