Initial public offering or IPO occurs when the shares of a private
company is offered to the public. All companies wanting to become
public must meet the requirements of the Securities and Exchange
Commissions. The purpose of the Securities and Exchange
Commission us to enforce the law against any form of market
manipulation. The SEC is responsible for protecting investors of
public business, as well managing of the securities market. Fred’s
Miracle Cough Syrup is going to face some legal or regulator issues
that may impact the public offering. ("Initial Public Offering (IPO)",
2022)
Fred’s Miracle Cough Syrup has been able to overcome
various obstacles to get to this point however going public is going to
highlight all inefficiencies and issues that the business has
experienced. The three glaring issues and concerns are the
accounting issues or the internal embezzlement by Jane. The second
issue is the reverse engineering that Bob was able to perform and
post the recipe on the internet. The last concern is the impending
sexual harassment case from Tammy against Fred and the company.
The embezzlement and accounting issues will raise red flags
to shareholders. Shareholders will be less likely to invest in a
business that has no internal controls of there financials. Fred and
Sally will need to prove to the public that they have the accounting
process under control with the hiring of Ted. They will need Ted to
set up internal processes to prove that he is performing his job
responsibly and there are internal checks and balances to the
accounting process. These internal processes are intended to prevent
fraud and to protect the organizations resources. ("Internal Control
and Accounting System Design | Financial Accounting", 2022) Fred
and Sally will need to convince the public that they now have a
licensed accountant to ensure the financial books are accurate and
correct.
The second issue or concern would be the reverse
engineering of the syrup. Fred’s recipe was reversed engineered, and
the recipe was posted on the internet. This will alarm shareholders
that very similar product may make it to the market to compete with
the current recipe. Fred has a patent on his cough syrup to protect
the original recipe, however competitors now have the recipe, and
they may alter an ingredient and be able to market the new recipe
with a different patent.
The last issue is Tammy’s sexual harassment case against the
company and Fred. Shareholders are going to be hesitant to get
involved with a company that has an active lawsuit, especially one
that is based on equality or sexual harassment. Fred and Sally have a
strong defense because they can show past results of not having a
licensed accountant doing the financial books. Tammy does not have
any experience in accounting and is currently the delivery person.
Fred can show the courts Ted’s credentials and background to prove
that he was hired because of his experience in accounting. Fred can
prove that Tammy’s lack of experience in accounting was the reason
she was not hired to fill that open accounting position.
References
Kubasek, N. et.al., (2020). Dynamic Business Law, Fifth Edition. New
York, NY: McGraw-Hill Education
Initial Public Offering (IPO). (2022). Retrieved 6 April 2022, from
https://www.investopedia.com/terms/i/ipo.asp
Internal Control and Accounting System Design | Financial
Accounting. (2022). Retrieved 6 April 2022, from
https://courses.lumenlearning.com/sac-finaccounting/chapter/intern
al-control-and-accounting-system-design/
