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| Does a company have to notify its investors when it faces legal proceedings? |
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Not necessarily. The SEC guidelines do not require businesses to publicize legal proceedings if these proceedings are a part of ordinary business and are not expected to cost more than 10% of the firm's assets; otherwise, any legal proceedings need to be reported. These guidelines are stated in Regulation S-K.
A problem arises, however, in the interpretation of the regulation: "ordinary business" is a very broad term that can encompass many situations. Because it is left to the discretion of the company to decide whether the legal proceedings are part of ordinary business, there is always a possibility that you will not find out about legal proceedings that you may consider important.
For related reading, see Knowing Your Rights As A Shareholder.
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