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)
a 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.
a 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.
a 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.
a 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/internal-control-and-accounting-system-
design/
