Finance law is the legal framework that governs a company’s financial affairs. It regulates lending requirements, types of investments, and reporting requirements. It also addresses bankruptcy and the discharge of financed debts. In addition, securities laws play a big role in finance law. For example, businesses that sell publicly traded stocks must adhere to strict reporting and financial disclosure requirements. This can include creating disclosures and complying with Sarbanes-Oxley.
Legal concepts underpinning corporate finance law
The legal concepts underpinning corporate finance are important for lawyers to understand, and this course will provide students with a solid foundation in this area. It will also help students understand how legal structures are developed and applied in the corporate context. This course is especially useful for those who wish to specialize in this field.
In some cases, corporations will issue different classes of shares, each with different rights. For example, one class of common stock will grant the holder more voting power than another. In addition, some shares will have junior and senior treatment, and some will have preemptive rights. Shareholders usually invoke these rights if they perceive they have become diluted or face a hostile takeover.
Another controversial concept in corporate finance law is the concept of legal capital. This concept aims to protect investors by limiting the payouts to net assets over the company’s capital and undistributable reserves. However, some critics say that this doctrine ignores the importance of the ability of companies to meet short-term and long-term financial obligations.
Impact of financial regulations on a business
Financial regulations have been implemented in the wake of the global financial crisis, and their effects have not been fully understood. Several studies have been conducted to understand the effects of these regulations, but the overall impact remains unclear. Some studies are conducted in response to specific regulations, while others provide more general and agnostic analyses of regulatory effects.
The cost of regulation can be high. New rules create costs for firms, which must use capital to comply with regulations. These costs include hiring compliance officers, maintaining records, and paying auditors and rating agencies. Further, regulations may restrict the type of business a business can pursue. In some cases, financial regulations can even deter new businesses from entering the marketplace.
While some regulations have good intentions, they can harm a business. For example, the Bank Secrecy Act, a regulation passed by the IRS, requires banks to disclose accounts with a balance of more than $10,000. This legislation discourages illegal activity by requiring banks to divulge financial information. Failure to comply can result in heavy fines. Some companies can avoid this problem by locating their operations outside the United States.