Time to Issue Rules Regarding Corporate Authorized Share Structure Changes

This is a great article, thank you fun1 for pointing this out.


Time to Issue Rules Regarding Corporate Authorized Share Structure Changes
Staff Reporter
Last Updated: July 01, 2010 - 4:35pm EST NEW YORK--Over the past several years liquidity in Pink Sheet stocks have increased dramatically, but so has the issue of investors being caught flat-footed from secret share structure changes in the dark of night.

Pink Sheet stocks, once the realm of illiquid non-trading securities, have grown over the past several years, and now trade millions of dollars in trading each day. But, as many investors who may have invested in such securities know, the ability for companies to raise corporate structures without any due notice to the market has left many investors out in the dark when it comes to these events.

To be fair from the start, we are not discussing the event of companies issuing shares by increasing their shares outstanding, but rather the more devastating move of the increase of ones corporate shares authorized. Many companies from the NYSE down to the pink sheets issue shares for many different reason, such as to investors to raise capital, or to new companies for acquisitions, or for services such as legal, promotion, or such things as website development or employees.

These events are very understandable as this feature is in a sense the heart of our capitalist system, and many investors understand shares are issued from day-to-day for many different reasons. What is more disturbing, and has been more of a dramatic effect on investors who invest in these securities, is the flagrant change in companies corporate shares authorized.

It seems to be all too easy for companies to raise their authorized shares under the cover of darkness, leaving many small investors on the stake when these moves develop into sudden and dramatic share increases in the open market.

Not that corporate authorized share increases should be banned, but their should be new rules regarding companies ability to raise shares authorized, and how the general market must be informed when these events happen. Given these are pink sheet securities, and have very little overview from regulators such as FINRA or the SEC, there could still be rules on the state levels that limit these companies on their surprise issuance of shares on the average small investors.

Maybe such rules as all companies must publicly disclose any increase in shares authorized on Pink Sheets, LCC website, local newspapers in the states they are incorporated, or public press releases say 72 hours before becoming effective.

Another wise rule would be to limit corporations ability to raise their authorized shares to say no more then 200% annually. If a company has say 1 billion authorized, there really should be no reason for them to increase their shares to more then 3 billion, unless without a public shareholder vote and approval.

If say from acquisition, or financing reasons, companies still find themselves in need for increased shares to finalize projects, then if under that 12 month period they reach that limit they would be forced to do a reverse split to facilitate their corporate needs.

Years ago the fear many small investors had was the idea of waking one morning to find their investment had done a reverse split of their common stock. But, in a reverse split, the value of the company and money invested doesn't change, its just the structure that changes. But, with endless increases in uninformed authorized share increases, this does effect investor value, and makes investing in such securities a very difficult and expensive prospect.

Recent examples of dramatic authorized share increases, and we're sure we are overlooking many more, are American Securities Resources (ARSC), or Relm Holdings (RELM), or Hall of Fame Beverages (HFBG) just to name a few.

These new rules would in no way resolve issues regarding corporate dilution, but at least it would give small investors in these securities a standing chance to invest in these securities without the issues of being left holding the bag in surprise dramatic shares increases. Some sort of rules regarding this wild-west shares authorized increases should be imposed.


http://www.wallstreetnewscast.com/news/pennystock_dilution.html