There is a natural fear of giving too much information to investors after the initial investment is received.\u00a0 CEO\u2019s worry that investors will not keep the information confidential and that financial data will find its way into competitors\u2019 hands.\u00a0 Others worry that investors will latch onto individual line items within financial data and engage in inquisitions regarding telephone bills, marketing costs and other tactical line items in detailed financial statements.<\/p>\n
First, let\u2019s cover the absolute minimum legal requirement a company has to provide to its investors.\u00a0 There must be an annual meeting of the shareholders, and that meeting must be announced with a written notice at least twenty days prior to the meeting. (There is a provision that a waiver of notice may be signed preventing this need, but it requires that all shareholders sign).<\/p>\n
[Email readers, continue here…]<\/em><\/span> At the annual meeting (which can be attended by phone), there are actions that require a vote of the shares present either by proxy or in person. These include election or re-election of board members if required by the bylaws of the corporation, approval of any increases to stock option plans (which would dilute the worth of shares outstanding), and approve any additions to the capital stock authorized to be issued.\u00a0 Shareholders may vote on other issues during the year by written consent, including acquisitions, stock issuances, changes to the articles of incorporation and bylaws, and more.<\/p>\n But the question that is most often asked is: \u201cHow much financial information must be divulged?\u201d\u00a0 The answer is that the minimum requirement is to provide an income statement and balance sheet to all shareholders annually.\u00a0 There is no requirement that either be detailed by general ledger account, and those statements should rarely be that detailed anyway.\u00a0 Summarizing income statements with a line for revenues, cost of revenue, general and administrative expenses, sales and other direct costs – all leading to net income, would satisfy the legal requirement for statement of income and expense.<\/p>\n When a company accepts an investment from professional or organized investment groups – such as angel groups, venture capitalists or corporations, there is usually a document signed called an \u201cinvestors rights agreement\u201d that calls out additional financial and narrative reporting requirements due to that class of shareholder.\u00a0 These could include the need for audited financials, monthly financial and narrative reporting and more.\u00a0 That burden is an ongoing cost of taking the investment, much as a public company takes on the additional burden of governmental reporting, both adding to costs over time.<\/p>\n Good relations with investors can be maintained only by keeping current with information between the company and the investors.\u00a0 If there is a concern over some investors gaining a competitive advantage, the amount of information may be reduced to the minimum for some classes of investors.\u00a0 A good example of this is the information provided to common stock holders, many of whom may be former employees who have exercised stock options and moved on to join the ranks of the competition.<\/p>\n Of course, a public company is not entitled to pare its information to reduce exposure to competitors.\u00a0 That is one of the many costs of becoming a public entity as many CEO\u2019s have found and dealt with over the years.<\/p>\n","protected":false},"excerpt":{"rendered":" There is a natural fear of giving too much information to investors after the initial investment is received.\u00a0 CEO\u2019s worry that investors will not keep the information confidential and that financial data will find its way into competitors\u2019 hands.\u00a0 Others … Continue reading