Legal Business Environment

Legal factors should be considered when buying and selling securities. A clear understanding of securities regulation is essential if managers want to avoid any civil or criminal liabilities. Securities Regulations are varied from countries to other.

The below summary is a major regulations are prevailing in U.S for investor protection.




Applicable to


Main legal considerations

Federal Securities Act of 1933


Initial sale of securities to the public.


Considers such sales as illegal to use the mails or any other interstate means of communication or transportation to sell securities without disclosing certain financial information to potential investors.

Disclosure of information to the potential investor or other interested party is required. The information given must not be untrue or even misleading.

Interested parties include issuers, underwriters, controlling persons, and sellers.

Both civil and criminal liability may be imposed for violations. Criminal liability results from a willful violation of the act, or fraud in any offer or sale of securities.

Federal Securities Act of 1933


Subsequent transfers of securities after the initial sale of securities



Section 10(b) of Federal securities exchange Act of 1934 was promulgated by the SEC that prohibit to use the mails or any instrumentality of interstate commerce or any national securities exchange to defraud any person in connection with the purchase or sale of any security. Liability under this section requires proof of scienter and not proof of simple negligence, It also requires proof of a practice that is manipulated and not merely corporate mismanagement.

Liability under section 10 (b) may be imposed on an accountant who performs only an unaudited write-up. An accountant is liability for errors in financial statements contained in a prospectus or other filed report even though unaudited if there are errors accountant knew or should have known. Even when performing an unaudited write-up an accountant must undertake at least minimal investigation into the figures supplied to and cannot disregard suspicious circumstances.

If The liquidity ratios such as current ratio or acid-test ratio for Company’s have been steadily increasing during the three of five-year period analyzed and the median current and quick ratios is higher than comparable Companies within the industry, it appears the company is a much stronger financial position to meet is current obligation as compared to its industry peers and it also indicates that Company’s is less leveraged than its peer group.

For Business valuation there are various approaches such as cost, market, asset and income approaches. As long as temporary investment are current assets. Therefore, the asset approach is used for determining the value of temporary investment. Marketable securities are temporary investments that are adjusted in the asset approach by evaluating the marketable securities at current fair market value at valuation date.

Forms & Templates

- Bond Status and Summary Sheet

- Hold-To-Maturity Debit Securities Amortization Schedule

- Stock Status and Summary Sheets

- Convertable Bonds Status Report