Q:

What do public disclosure laws do?

A:

Public disclosure laws refer to companies and organizations that are privately owned and, therefore, do not have to disclose financial and operating details in most cases. These laws are important because they allow companies and organizations to decide what information, if any, should become public knowledge.

Companies and organizations that are publicly owned, however, are forced to share specific information about their operating results, management compensation and financial conditions. These laws are applicable to all publicly shared companies regardless of whether they are small or large businesses. These laws were created to ensure that stockholders know what is going on with the companies that they have invested in. Some companies choose to remain private so that they can avoid these laws.

Another law that is similar to the public disclosure laws is the Sarbanes-Oxley Act. This Act was created when Enron filed for bankruptcy in 2001. It was the largest bankruptcy filing in history at that point and cost Enron's investors billions. Not only did the bankruptcy hurt investors, but employees lost their life savings as well as their jobs. It could have been prevented if there were regular audits that had showed the financial decline of the company. The data was hidden due to corrupt practices by Enron management. The Sarbanes-Oxley Act addresses these corrupt business practices and makes them virtually impossible, in order to protect both investors and employees.

Sources:

  1. irs.gov
  2. inc.com

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