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Corporate Governance and Federal Securities Laws

25. What is the role of “securities laws” in corporate governance?

Federal securities laws are generally concerned with corporate compliance. The primary federal securities laws are the Securities Act of 1933 (’33 Act) and the Securities Act of 1934 (’34 Act). State law also governs the sale or exchange of securities, but state law largely mimics or piggybacks upon federal securities law. The ’33 Act primarily controls the initial issuance of securities. In private corporations, the ’33 Act places numerous governance requirements on corporate stakeholders during the issuance process. The ’34 Act places significant requirements on the reporting and disclosure of information by publicly-held corporations. These provisions include mandatory reporting to the Securities and Exchange Commission, as well as disclosure requirements to corporate shareholders. The corporate directors and officers are primarily tasked with making and ensuring the accuracy of all securities-related disclosures. Notably, the ’33 and ’34 Acts allow for a cause of action by shareholders against the corporation or its agents for failure to make disclosures, omissions, or material inaccuracy in a disclosure. These causes of action are based upon negligent misrepresentation and fraud (intentional misrepresentation) in connection with the purchase or sale of corporate securities. The causes of action available to shareholders under the ’33 Act and ’34 Acts are discussed in greater detail in a separate chapter.

•    Discussion: Why do you think corporate compliance with securities law is an important consideration in corporate governance? How does compliance affect each stakeholder (shareholder, director, officer) in the corporate governance regime?

•    Practice Questions: What are the corporate governance requirements relevant to federal securities laws?

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