A:

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.

Three main elements go into the decision to disclose: If the answer is "yes" the company usually has to disclose
1. Is the case material information? Will it make a difference, or would investors want to know?
2. Is the combined lawsuit worth more than 10% of the company?
3. Is it outside of "ordinary" work?

There are many other factors which call for disclosure such as when the interests of the company and a director differ in a law suit, or when there are environmental laws involved. Legal proceedings must also be disclosed for director nominees and executive officers, if that information is material to the elevation of the nominee. This is to better understand the character and competence, but civil settlements do not need to be disclosed.

For related reading, see Knowing Your Rights As A Shareholder.

RELATED FAQS
  1. What do states do with unclaimed property?

    Unclaimed property refers to personal accounts in financial institutions or companies that have had no activity and whose ... Read Full Answer >>
  2. How do financial advisors execute trades?

    Today, almost every investor invests through online brokerage accounts. Investors often believe that their trades are directly ... Read Full Answer >>
  3. What are ComputerShare's escheatment services?

    Escheatment is the process by which ownership of abandoned property is transferred to the state. Escheated property can include ... Read Full Answer >>
  4. How does escheatment affect a company's shareholders?

    Escheated property in the United States is a designation for personal property such as bank accounts, shares, insurance proceeds, ... Read Full Answer >>
  5. How do modern companies assess business risk?

    Before a business can assess or mitigate business risk, it must first identify probable or likely risks to its bottom line. ... Read Full Answer >>
  6. Why has emphasis on corporate governance grown in the 21st century?

    Corporate governance refers to operational practices, management protocols, and other governing rules or principles by which ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Inside IPO Roadshows

    Understand more about IPO road shows. Learn the reasons why an IPO road show is important for the success of a company's public offering.
  2. Stock Analysis

    Forest Laboratories: An Activist Investment Analysis

    Find out how patience and perseverance paid off big-time for billionaire activist Carl Icahn during his four-year fight with Forest Laboratories.
  3. Stock Analysis

    Tribune Media: An Activist Investment Analysis (TRCO)

    Learn more about the breakup of Tribune Company, once a powerful newspaper and broadcasting giant, and the role of activist investor Cliff Robbins.
  4. Stock Analysis

    PepsiCo: An Activist Investment Analysis (PEP)

    Read about the nearly two-year public feud between activist investor Nelson Peltz, head of Trian Fund Management, and iconic soft drink maker PepsiCo.
  5. Stock Analysis

    Hologic: An Activist Investment Analysis (HOLX)

    Read about a health care company that attracted activist investors Carl Icahn, Barry Rosenstein and Ralph Whitworth at the same time.
  6. Stock Analysis

    Air Products and Chemicals: An Activist Investment Analysis (APD)

    Learn about the productive, and uncommonly friendly, activist investment made by Bill Ackman into Air Products and Chemicals.
  7. Economics

    Why Enron Collapsed

    Enron’s collapse is a classic example of greed gone wrong.
  8. Stock Analysis

    4 Executives Who May Be On Thin Ice in 2016 (CMG,TWTR)

    Find out the reasons why these executives of underperforming companies may find themselves on the chopping block in the coming year.
  9. Stock Analysis

    Fortune Brands Home & Security: An Activist Investment Analysis (FBHS)

    Read about Bill Ackman's highly successful breakup of longtime holding company Fortune Brands in one of the most profitable examples of Wall Street activism.
  10. Stock Analysis

    Clorox: An Activist Investment Analysis (CLX)

    Read about the high-profile battle between The Clorox Company and billionaire activist investor Carl Icahn, who had three offers repelled by the Clorox board.
RELATED TERMS
  1. Corporate Accountability

    The performance of a publicly traded company in non-financial ...
  2. Share Repurchase

    A program by which a company buys back its own shares from the ...
  3. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  4. Issued Shares

    The number of authorized shares that is sold to and held by the ...
  5. Series EE Bond

    A non-marketable, interest-bearing U.S. government savings bond ...
  6. Brand

    A distinguishing symbol, mark, logo, name, word, sentence or ...
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center