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In response to the multi-billion dollar corporate corruption scandals involving Enron, World Com and other U.S. corporations, the U.S. Congress passed the Sarbanes - Oxley Act of 2002 (SOX) . Many consider the act to be over-regulation of the problem. Either way, the effect on small to mid-cap venture companies in particular is
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Reality of U.S. Sarbannes Oxley Act (SOX)
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Cost - SOX has dramatically increased the cost of corporate compliance:
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The cost for a U.S. company to become SOX compliant is estimated at 5 to 6 million USD; and is even more onerous for foreign companies |
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Doubles or triples the cost of IPO Insurance and directors/officers liability insurance |
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Threat - Increased risk of personal liability claims against company directors and officers |
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Risk - Increased exposure to U.S. Litigation |
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Uncertainty - New and as yet uninterpreted legislation |
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Onerous - Higher proportion of Retail investors, e.g. Nasdaq has appx. 51%, means more regular, in depth and tedious reporting - Quarterly
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A number of non-U.S. companies are already making moves to de-list in the US because of the burdens of SOX compliance, e.g. lastminute.com.
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Download a PDF file of the Sarbanes Oxley Act and note Section 404 [ Download PDF ] |
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