Question

Which of the following is correct about the steps a firm takes in issuing securities to the public?

A)Unless the number of authorized shares of common stock must be increased, management need not obtain approval from the board of directors

B)Management must file a preliminary prospectus with the OSC (Ontario Securities Commission)

C)While the OSC (Ontario Securities Commission) studies the proposal the company may begin selling shares

D)A red herring contains the final selling price of the securities

E)None of the above

Answer 1

Option B is the correct answer.

For increasing the number of authorised shares, approval of shareholders must be taken because there rights are affected.

Before issuing final prospectus, a preliminary prospectus must be filed with the OSC. OSC will review the prospectus and will give his comments on it. Final prospectus is then prepared. After the finalisation of final prospectus, it is issued to public who in turn subscribe to the shares. Company can not sell securities until and unless final prospectus is prepared and issued to public.

Red herring prospectus is a preliminary prospectus. Thus it can not contain the final selling price of the securities as it need to be reviewed by OSC.

Thus, keeping above things in mind, we can conclude that option B is the correct answer.