Thesis: Securities Regulation Securities Regularizations

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[. . .] To get a clearer idea, it becomes important to consider some of the institutes which form a part of these NPO's. These, therefore, includes, "Schools, Hospitals, Charitable Institutions, welfare societies, clubs, public libraries, resident welfare association, sports club, etc.." [footnoteRef:15] [15: ]

They are increasingly becoming alternatives to the provision of facilities and activities as the Government continues to fail in many sectors due to the growing economic pressures and the impact of recession. In such conditions, NPO's as appeared as platforms that can help in catering to the many needs of the individuals in the society, including food, Education, Housing, and it is the provision of these needs that become the main purpose of these Organizations and is their defining line, which helps them in procuring funds from the various donors.

All of these institutes are providing services towards the general population, and while they can have a profit markup on the services that they provide, this is not to mean that they can keep the profit for themselves. Instead, the functioning of a NPO is more like a constant cycle, in which the profits earned are kept aside for a time when the lack of stability might push the organization to dip into these funds to subsidize their own programs.

As already discussed in the introduction, the transparency of the various sectors of an organization is a very important part of an organization today. It is with this in mind that the many Laws and Rules writing the U.S.A. make it compulsory for certain regularities on the securities that are being mentioned by the NPO's.

Tax Exemption for NPO's

A NPO can be catered for a tax exemption, depending on fulfilling a certain criteria and filing if with the IRS. To fulfill this criteria, however, the organization must fall under one of the categories which have been discussed above, or can even be a trust, corporation, or association which is seeking exemption under IRC 501(c)(3)[footnoteRef:16]. [16: ]

The procedure however, is quite thorough and requires the submission of a form 1023 along with another data which includes "financial data, a description of activities, purpose, standards, and procedures…an Employee Identification Number, and have an exempt purpose." [footnoteRef:17] [17: ]

The purpose can easily be derived through the language and procedure that are obtainable from the IRS Publication 557 but this also depends on the revenue that is being generated by the organizations. For example, "Churches and other organizations having gross annual receipts of $5,000 or less do not have to apply to be considered tax-exempt organizations." [footnoteRef:18] [18: ]

Nonprofit Organizations are exempted from tax, although, in this too, it requires the undergoing of a rigid process. The list of organizations that can be exempted is long and includes all those 501 (c )(3) as listed by the IRS.

The exemption, however, is limited to only those properties or activities that are non-commercial or nonprofit tin their nature. Any organization that crosses the threshold of this distinction is automatically removed from this exemption. Or in some cases, those organizations which are involved in nonprofit activities but are performing commercial activities on some part of the property, would be taxed for that part only.[footnoteRef:19] [19: ]

Financial Workings of a NPO

The financial workings of an NPO are not an easy thing to understand, which is getting increasingly complex as the impact of recession and the increase in funds and donations increase. The traditional purpose of these organizations, have therefore changed drastically from just being organizations which provide certain services.

Many an organizations rely on securities bonds, which in most cases of 501(c)(3) are tax exempted. These organizations need these in their times of needs, which can vary from the funding of a new project to cater a fundraising, and now, they have become a source to keep these NPO's afloat as more and more companies face recession.

The question then arises is that why is there a need for security bonds to rely on, when the major running of NPO's is being catered though donations? The justification for this relying is that most of the funding that comes from private donors is restricted and conditioned for a certain purpose. This organization is then bounded to use that donation for only that purpose; this leaves little flexibility for the other purposes and programs that an organization may have. In this scenario, securities can be a great help indeed to further the goals of an organization, without depending only on one source of funds.

At the time of selling of these securities, it becomes imperative that the securities are registered with the SEC so that no fraud can be committed against the investor. They are required by the Securities Act of 1933 and Exchange Act of 1934 to act in accordance with the rules and regulations and have all their securities registered. The securities registration allows for the investor to know in wholeness the state and the potential that these securities might have for him, and thus helps him in making an informed decision.

The lack of complying with these rules and regulations can lead to the revoking of the tax-exempted status of these securities. This has been discussed in detail in the next section.

Nonprofit organizations exempt from many securities requirements

Despite this, there are many loopholes that exist today in the NPO's rules and regulations, many of which do not even require the disclosure of the deals and sells that are made between the investors and the NPO. And it is at this very stage that the doors to fraud and corruption are bound to open.

Already there are many a reports which are indicating that the rate of corruption in NPO's is slowly and gradually on the rise. And despite the fact that there are many rules that are in place to counter such things, they have not been successful enough as they have enough holes in them to avoid being caught by this very system in place. And it is with this thought in mind that we approach the main question of this research paper.

3. NONPROFIT ORGANIZATIONS NOT EXEMPT FROM SECURITIES REGULATION

The Nonprofit sector or the Independent sector has emerged as a counter sector to fulfill the ever increasing demands of a society, which are exceeding beyond the management and the scope of only Governmental Agencies. It is in the light of this fact that NPO's are becoming an important part of our societies and thus emerging as a dominant force.

Their ultimate success lies in the faith that people have in them, and if that is lost then their existence in itself would become a question of survival of the fittest. The many corruption charges and fraud cases that have come up against the NPO's have not been a good sign for this sector as many people are now starting to lose faith in them. This could go on to adversely affect the trust that people have in them and affect their funding, donations and volunteering spirit which makes quite a big chunk of their employment force. This is of prime importance, since as an Independent sector, it is one which relies deeply on the compassion of the people so that they can continue their working.

It therefore becomes empirical that the NPO's adhere themselves to regularizations and a constant check. There is no arguing that since the 1930's and especially after The Great Depression, the realization of the importance of transparency has been felt in the overall American system, and indeed rules and regulations tailored to counter any such disaster are in place. But are they enough?

The paper sets for itself the task of evaluating the many rules and regulations that have been put in place and to seek the answer for itself whether enough has been done? And if indeed enough has been done, then why are the many cases of corruption and fraud still coming up? Where does the problem lie and how can it be solved?

4. FEDERAL SECURITIES LAWS THAT APPLY TO NONPROFIT ORGANIZATIONS

The section would focus itself on covering the many rules, regulations, amendments and acts that have been put in practice to regulate the sales of Securities. These rules are not exclusive to NPO's and therefore their effects and their connections with the nonprofit organization would be dealt with separately, under each law.

Securities Act of 1933

The Securities Act of 1933, also known as the "truth in securities" Law was the result of a need after the Great Depression and since then has been instrumental in the way NPO's function. It works under the umbrella of two basic objectives:

• require that investors receive financial and other significant information concerning securities being offered for public sale; and • prohibit deceit, misrepresentations, and… [END OF PREVIEW]

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Securities Regulation Securities Regularizations.  (2012, January 12).  Retrieved June 24, 2019, from https://www.essaytown.com/subjects/paper/securities-regulation-regularizations/8657281

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"Securities Regulation Securities Regularizations."  12 January 2012.  Web.  24 June 2019. <https://www.essaytown.com/subjects/paper/securities-regulation-regularizations/8657281>.

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"Securities Regulation Securities Regularizations."  Essaytown.com.  January 12, 2012.  Accessed June 24, 2019.
https://www.essaytown.com/subjects/paper/securities-regulation-regularizations/8657281.