. Is it fair to characterize your Plan as "compensating losers"?A
. We find it more appropriate to characterize the Plan in terms of compensating those always picking up the tab for share capital in the primary market, a tab which has grown so overwhelming it has caused serious inequality. A time for generosity and chivalry is long past. "Splitting the Bill" is a fitting description of the Plan.Q
. Progressive politicians often propose taxing the wealthiest 1% of Americans to fund universal social programs. Does your PLAN offer a better solution?A
. We know this taxation approach is politically palpable and easier to enact into law. We would applaud its enactment. Our PLAN offers a different approach and arguably a better solution over the long term. With that being said it is certainly smart and pragmatic to have more than one approach. Especially, when both approaches may be used concurrently, since they occupy different lanes. The public's needs are great. It is difficult to imagine a single approach being the only source of funding for all needed universal social programs. UBI programs are becoming more popular in cities and states each day. In the future with the advent of artificial intelligence (AI) Americans may well insist upon UBI and the power for change will shift. The level of urgency for UBI may eventually reach a crescendo, because nothing affects Americans more than their income. Wealth and income inequality have never been more disparate and detrimental for our society. Our PLAN balances capitalism while funding a UBI program, whereas a taxation approach fails to address the underlying issue of rapacious capitalism. It may be said our PLAN solves two substantial issues in one fell swoop.Q
. Does your PLAN pull back the veil on the stock market?A
. Yes, in a humane sense, a concern for the well-being of others, is at the heart of our rationale for the PLAN. We like to say the PLAN's elegance offers a simple solution to a poor design flaw in market mechanics. In a sense we simply reach into the market's engine block and adjust the balance on the bearings, so to speak. Yes, the impact of this market adjustment is impressive, and many may feel there is a brilliance in its boldness. We believe the market should have been balanced in this way since its inception. Of course, each reader will interpret and judge the PLAN on its own merits.Q
. Who will administer the universal basic income (UBI) fund program?A
. The United States' UBI (US/UBI) fund will be jointly administered by the United States Treasury and a nonprofit Trust Foundation. A collaborative balance by the unique pairing will secure the fund's future. A Congressional oversight committee will ensure the fund is tightly regulated. The Treasury will focus on UBI payments to qualified recipients, fraud protection and investigation. A portion of surplus UBI funds will be invested in securities backed by the full faith and credit of the United States government and managed by the Treasury. Risk management responsibilities will be divided between the Treasury and Trust Foundation.
The Trust Foundation's mission will be to preserve and grow the UBI fund to ensure the fund's long-term viability. Treasury and Trust Foundation liquidators will collaborate with the divestiture of financial assets, including cash or cash equivalents, stocks, fixed assets, and possibly crypto currency, any of which may be accepted into the UBI fund by the administrative judge. Share capital and its equivalents received into the UBI fund will provide a perpetual impetus for growth. The Trust Foundation will grow the UBI fund by investing in low-cost index funds tied to the stock market as a whole. In addition, the Trust Foundation will channel dividend payments into the surplus fund from a portfolio of select dividend stocks taking advantage of corporate profits and growth in stock valuation.Q
. Does the plan and reasoning behind balancedcapitalism.org hold promise for the U.S. and other countries?A
. [Since economists and financial experts have difficulty agreeing on a firm plan on how best to balance capitalism, we posed this question to the artificial intelligence (AI) robot on Cybernautics Semantics (the world's first magazine with an AI writer). The following answer was generated by AI on December 9, 2021].
. The exact same arguments apply to any country that has a national currency. Of course, countries with floating exchange rates are not susceptible to the negative effects of inflation and currency debasement that fixed exchange rate countries like China experience. But the same principles still apply, whether you have a fixed or floating exchange rate, if you have a central bank that is creating new money and giving it to people who want to borrow it, then you will in the longer run be setting yourself up for the kinds of malinvestments and bubbles."
"What are some of the most important things we can do now to stabilize our financial system? The most important thing is to stop what we are doing now. We have to stop bailing out the big banks and companies that are failing, because this just encourages them to take more risks. You can't prevent all financial problems, but you certainly don't want to bail people out when they make mistakes. We need to stop central banks from creating money out of thin air and giving it to banks who want to borrow it. We don't have a debt crisis we have an inflation crisis."Q
. May it be reasonably argued that public corporations already give back to society through charitable giving and should not be required to reallocate upwards of 50% of their share capital into a UBI fund.A
. No, charitable giving statistics indicate year-after-year individual Americans give a much larger percentage of money to charities than corporate donors. So, it is easy to see, the general public not only pays for all share capital benefitting public corporations to grow and expand their businesses, but also pays much more annually to charities. For example, charitable giving in the U.S. reached a record $471.44 billion in 2020, with individual Americans giving approximately $325 billion, corporations giving over $20 billion and foundations giving $126 billion (Barrons.com). Thus, in 2020, 69% of charitable donations in the U.S. came from individual donors (Businessinsider.com). To understand such disparity is no statistical fluke, let's go back to 2014, when individual Americans gave $358.38 billion to charities, and of that amount, only 5% came from public corporations, 72% from individual donors and 23% from foundations (givingusa.org).Q
. What scenarios may be anticipated when a public corporation is faced with allocating upwards of 50% of its share capital into a UBI fund?A
. A public corporation (PC) will need to decide how it wants to handle the UBI fund obligation in a timely manner. As described on the Features page, a PC may create a new class of common stock to satisfy the UBI obligation. The new stock class must be defined in a way to entice investors, who are primarily interested in a return on their investment (ROI), and not voting rights. Tax-free dividends and preemptive rights may serve to sweeten the enticement. Preemptive rights give shareholders the opportunity to buy additional shares in any future issue of a company's common stock before the shares are made available to the general public. Authorized stock is the number of stock shares that a company may issue to investors at the time of incorporation, and stock shares that the company's board of directors may issue later, as specified in the Articles of Incorporation. The PC may offer for sale all the authorized shares immediately, i.e., issued stock, or hold them back for sale at a later date, i.e., unissued stock. Holding shares back is fairly common, and unissued shares often exceed the actual shares issued for sale on the market. Usually, the number of shares that are authorized is much more than what is actually needed. A public corporation's board of directors may vote to increase authorized shares. In this event, the company charter must be amended (Upcounsel.com) (Mometrix.com).
A forward stock split, as part of a multi-pronged corporate strategy, may be implemented to satisfy the UBI fund allocation rule. A forward stock split increases liquidity by increasing the number of shares outstanding and lowering the share price, resulting in an increase of investors.Q
. How was the PLAN developed?A
. The PLAN took years to fully develop after figuring out the mechanics of the stock market
and realizing a balanced approach offered a better way to achieve the same results. Borrowing a phrase from Robert Kuttner, the PLAN offers a solution to taming capitalism in the public interest. Many people will be focused on the PLAN itself. But we offer details below for those who wish to understand the need for change. We are dedicated to serving the community and providing a social benefit. Naturally, we are keen to solve the problems of funding public needs. Bear in mind, IPOs, M&A deals and stock buybacks are top business exit strategies, which are planned ways company founders and early investors may extract funds from a company to their benefit for varied reasons.Q
. So, how do you propose to balance capitalism?A
. First, let us address the distribution of share capital following stock offerings. Once this rationale is understood, it will be easy to apply similar logic to business dealings like M&A deals, stock buybacks, etc. A private company goes public, generally, because it needs share capital to grow and expand its company. During an IPO, the firm offers stock in the primary market to raise share capital. Following an IPO, the newly formed public company will be required to allocate 50% of the share capital into a UBI fund. In the future, if the firm requires more share capital, it will issue a secondary offering. Following a secondary offering, the firm will be required to allocate 50% of this share capital into a UBI fund. In the future, if the firm needs more share capital, the process will be repeated. After primary and secondary offerings are sold in the primary market, the stock is then traded as usual in the secondary market.Q
. Let me see, if I have this correct. A public company will be required to allocate 50% of its share capital into a UBI fund, but will be allowed to retain the other half to grow and expand its corporation, right?A
. So, under the PLAN, a public firm will need to issue stock in two separate stock issues to retain the same amount of share capital acquired now in one issue, right?A
. Yes, that is accurate. Or else, a public firm may double the amount of stock offered in one issue to retain the same amount of share capital.Q
. Will there be a reasonable period of time for existing corporations to satisfy the UBI fund obligation?A
. The time period will be handled by the administrative judge on a case-by-case basis. The judge may establish a unique allocation plan and timeframe for each corporation, extending from a few months to a few years. The judge may organize the total number of public corporations into blocks and announce a time frame for adjudicating each block to allow the stock market to factor this judicial strategy into its market dynamics.Q
. Does the PLAN have a fixed ceiling for the UBI fund program?A
. Available funds will be a key factor in determining an income ceiling. Achieving a comfortable balance between individual/family needs and taking into account society's long-term welfare will be a consideration. Stability is an important consideration. People will need a basic income program they will be able to count on. That is why establishing a minimum threshold ceiling is important. A two-tier basic income program may be considered. A secondary tier tied to a percentage of GDP may be established above a minimum threshold ceiling. Basic income in the secondary tier will be higher when the GDP does better. A poorer GDP means basic income in the secondary tier will be lower.Q
. How will the PLAN affect stock prices?A
. The unique PLAN will lead to an expansionary economic policy, which leads to a positive outlook for the stock market, because it will generate increased economic activity and an improvement of financial conditions. Notwithstanding, according to Investopedia, structural change is often sparked by global shifts in pools of capital. Not only will businesses have to adapt to the new order, but so will markets. The dynamism that is inherent in the system depends on the nature of what is driving the structural change. Policy shocks are changes in government policy that have a profound economic effect, which might even be the goal of a government action. The stock market will anticipate and integrate the policy change into its market dynamics during the political build up before an actual policy change takes effect. It is important the change is handled in a positive light.Q
. Will public corporations support the PLAN?A
. By creating educational awareness and building a political groundswell of support for the PLAN, public firms will be awakened to the societal benefits of the PLAN and understand the need to make a change in the status quo. The PLAN levels the playing field but does not harm a public corporation's ability to acquire share capital. It will simply change the strategy of how to go about it. The PLAN may well be viewed as an inconvenience for corporate America but will not serve as an impediment over time. According to change management theory and practice, the principles of change management will need to be applied during the transition process. These principles include the need to understand change, plan change, implement change and communicate change. Many public corporations will be initially resistant to change, but adaptability and assimilation requires flexibility and humility. We trust public corporations will rise to the challenge and adapt to the change, because they will recognize the public necessity. An inclusive perspective is required to ensure the system works for everyone.Q
. How will the stock market be affected by the PLAN?A
. The PLAN will not affect the structure of the stock market. It will only affect the amount of share capital a public corporation will be allowed to retain after a stock issue. Any stock price volatility will soon subside since the market will factor in a bright economic future. To understand the PLAN, it is necessary to understand who pays for share capital and the subsequent consequences in order to appreciate why the PLAN is necessary. The key points to understand is that there are net winners and net losers in the stock market and the net losers pay for all net winnings, including all share capital generated by IPOs and secondary stock issues. Another way to think about this is that the general public pays for share capital. Public corporations do not pay for share capital. In terms of the stock market, "public capital" and "share capital" may be used synonymously.Q
. Why is the PLAN necessary?A
. There is no better time to advance the PLAN than the present. Inequality in the system has hammered the general public beyond measure, both emotionally and financially. Since the net losers in the stock market pay for all share capital, they may be categorized, for discussion's sake, as a 'class of people', which is defined narrowly as a group of people sharing the same economic status. This class of people have been exploited unfairly in no small measure. Exploitation is narrowly defined as the act of using resources of people unfairly in order to benefit from their efforts. Unfairly is defined as a manner that is not in accordance with the principles of equality and justice. The PLAN takes into account the plight of this 'class of people'.Q
. The stock market is a game of chance, and after all, the net losers ultimately lose their bets, right?A
. Correct on both accounts. A more important question needs to be asked and answered. When does a game of chance stop being a game? Obviously, it depends on the game’s degree of seriousness, defined as the degree to which something is bad. The losses of a single net loser in the stock market have a lesser degree of seriousness than the losses of an entire class of net losers in the stock market. The plight of this entire class of people is real and the degree of seriousness ranges to an extreme level, considering the staggering financial losses and the distress caused by this inequality. Once the PLAN is implemented, the degree of seriousness level will drop because equality will be restored.Q
. What makes this class of people different than say…the net losers in Las Vegas, the horse track or Atlantic City?A
. There are three things to consider: scale, significance and stakes. Financial losses in Las Vegas, the horse track or Atlantic City go towards supporting the gambling industry. The financial losses in the stock market go towards supporting corporate America in its entirety and not just a single sector of the economy. The distinction between these two classes of net losers is significant and the stakes could not be starker. The gambling industry in the U.S. is worth $261 billion dollars and holds 1.8 million jobs (Casino.org, 2021). In 2022, the capitalization of the entire U.S. equity market was approximately $44 trillion dollars, as measured by the Wilshire 5000 Index (Market Watch). The PLAN will provide a basic income to all U.S. citizens who qualify, which includes citizens in the gambling industry.Q
. But under the PLAN, the net losers will continue to pay for all share capital and net winnings in the stock market, right?A
. Yes, that is correct. The PLAN does not reinvent the wheel. But it is fair to say, $44 trillion is quite enough of the net losers’ largesse without imposing an equitable remedy to mitigate the net losers’ plight. It is impossible to calculate how much these staggering net losses in the stock market have negatively impacted American lives across generations. The PLAN will right the ship of commerce and industry.Q
. It seems you are equating the class of people categorized as net losers in the stock market with the general public, right?A
. Yes. The general public and the class of people categorized as net losers in the stock market are one and the same. According to Pew research, more than half of U.S. households have some investment in the stock market. These households and the other half of American households likely have had parents, grandparents, great grandparents, etc., who were involved in the stock market at some point in time, because the general public has been supporting public corporations for over 260 years—Dupont (1802), J.P. Morgan (Chase) (1799), Jim Bean (1795), Cigna (1792), State Street, formerly Boston’s Union Bank (1792), Bank of New York (1784), Tom Brown and Co., now RR Donnelley (1775), Ames True Temper, Lawn & Garden (1774), Lorillard Tobacco Co. (1760). Public consumers over the many decades have purchased the goods and services offered by public corporations, causing stock prices to rise and fall. And the general public has always ultimately paid for stocks whether rising or falling.
The public's money has been invested in the stock market, either by retail investors or institutional investors, since the stock market's inception. Retail investors and traders are individuals who invest their own money in the stock market. Institutional investors and traders do not invest their own money, but other people's money in the stock market, namely the public's money in pension funds, mutual funds, hedge funds, money managers, insurance companies, endowment funds, investment banks, private equity funds, etc. According to Researchgate.net, institutional investors and traders did not begin to dominate the stock market until the 1990's.Q
. It is common knowledge public corporations are primarily concerned with profits and shareholder value, right?A
. Yes, but this business strategy fails to recognize, much less remedy, the shareholders who ultimately pay for all share capital. Public corporations must understand the full implications of the term "public" in their description. And they will need to step up and push for the efforts to balance capitalism, because it is in their long-term best interest to do so.Q
. Will the UBI fund program be considered taxable income?A
. No, since a public corporation pays no taxes on money received from an IPO or secondary stock offerings. A capital gains tax will be paid when share capital is sold at a gain. Fair is fair. Why should an individual pay taxes for receipt of money from a basic income program, since it is derived from the same source of funds. Keep in mind, state sales taxes will be paid when such monies are spent on goods and services, and federal taxes will be paid when investments are sold as a capital gain. This approach offers a basic sense of fairness to taxpayers.Q
. Will an increase in issued stock dilute the value of stocks?A
. Without getting deep into the weeds, a public corporation’s legal provisions may need to incorporate adjustments to its earnings per share and ratios for its valuation to counter dilution effects in the event of future stock issues. For example, a weighted average approach or a full ratchet approach are two ways, among other adjustment options, which may be used to counter-dilution effects. If interested, one may study these approaches on-line. Although the issues involved can be complex, one need not have an MBA or be a financial analyst to understand the basics.Q
. I am wondering if the PLAN will be construed as a corporate tax?A
. No, because a corporate tax is a levy placed on corporate profits.Q
. Will the PLAN harm the economy?A
. The PLAN will infuse the economy with an abundant amount of financial wherewithal to mend America’s social inequalities—a remedy that will obviously invigorate the economy on a recurring basis without adding to America’s debt or placing a burden on taxpayers. Actually, the PLAN eases the burden on taxpayers considerably.Q
. Can the proposed economic model be used worldwide?A
. Yes, the PLAN may be implemented in all countries with stock markets. There are stock exchanges in the Middle East, Europe, Asia Pacific, Africa and North America. Perhaps, this model will encourage stock exchanges in South America and elsewhere.Q
. Will the PLAN have a negative impact on mutual funds?A
. Most mutual funds have bylaws which prevent fund managers from investing in IPOs in the primary market. According to the economist Robert Reich, "the vast majority of Americans who invest in the stock market invest in index funds that are tied to the performance of the stock market as a whole". Index funds are mutual funds. There is little argument that index funds weather volatility better than individual stocks. Though volatility is a normal phenomenon of the stock market. Warren Buffett wrote in a 2016 letter, "both large and small investors should stick with low-cost index funds". In addition, the PLAN will affect the distribution of public capital grown in investment pools called DAFs, which may be set up as active or passive mutual funds, but applicable only if the corporate public foundation participates in raising share capital in an IPO and secondary issues.Q
. Do stock buybacks offer an alternative remedy to balance the stock market for the general public?A
. No, since shareholders who receive money from stock buybacks may not be the net losers in the stock market, who ultimately pay for the IPOs and secondary stock issues, because they have already sold their stock at the time of a buyback.Q
. So, why not just repay the net losers directly, rather than indirectly, through a basic income program?A
. If even feasible, logistically, due to high-frequency trading, flash trades and other relevant issues, the notion would affect the equity market to an unacceptable degree.Q
. So, the PLAN will not affect private businesses, right?A
. Private companies are not listed on public stock exchanges. Private businesses and their employees will benefit from a UBI fund.Q
. What do you think about the idea of taxing stock trades to pay for a UBI fund?A
. We support this progressive idea. Taxing stock trades is another way to fund universal social programs but will not fully remedy the economic imbalance. As previously stated, instituting a wealth tax on the top one percent is another good idea to fund social programs.
The PLAN offers a better solution if the bar is raised to protect lower-and-middle class Americans from exploitive capitalism. Wealthiest Americans, Elon Musk (PayPal, Tesla), Jeff Bezos (Amazon), Bill Gates (Microsoft) and Mark Zuckerberg (Facebook/Meta) amassed much of their personal fortunes through (1) personal stock gains built on company stock offerings and (2) personal stock gains built on company profits. Our PLAN will journey along a similar path to grow the UBI fund.Q
. Now that I understand the rational involving IPO’s and secondary stock issues, please explain why the PLAN includes M&A deals.A
. Share capital supports the growth and expansion of a public corporation, allowing it to be in the position to participate in an M&A deal. Thus, a remedy for the exploited net losers is required. A private company involved in an M&A deal benefits from the share capital of a public corporation. So, all M&A deals involving a public company will be required to adhere to the PLAN. To be clear, mergers and acquisitions (M&A) refers to the consolidation of companies or assets through various types of financial transactions. The company that pays to acquire another company is known as the acquirer and the company to be purchased or acquired is referred to as the target. Keep in mind, a proposed deal may be structured at a higher transaction price to provide a target with more proceeds after satisfying PLAN requirements.Q
. How will the PLAN affect stock buybacks of public companies.A
. Stock buybacks involving a public company will be required to adhere to the PLAN. A stock buyback is when a public company buys back shares of its own stock. If a public company claims only its profits are used to buy back stocks, it will be reminded that its share capital supported the generation of its profits.Q
. Explain why private equity (PE) firms/funds are included in the PLAN.A
. PE is ownership of a company that does not have publicly traded shares. PE investors may buy a public company and then delist it. When a PE firm/fund buys a public company, it is exploiting share capital. Since 1996 public companies in the U.S. have been devoured by private equity firms resulting in a decrease in publicly traded companies from approximately 8,000 in 1996 to fewer than 4,000 today (Atlantic magazine, October 2023). The PLAN offers a suitable remedy for this measure of exploitation. The "retroactive" provision will be administered by the Administrative Judge on a case-by-case basis.Q
. Explain why registered lobbyists are included in the PLAN.A
. Registered lobbyists, advocating or influencing public policy benefitting a public corporation, are exploiting share capital on behalf of their clients. The PLAN offers a suitable remedy for this measure of exploitation.Q
. Explain why election spending is included in the PLAN.A
. Public corporations may spend unlimited funds in campaign advertising. When they do so, they are exploiting share capital. As long as this is lawful, the PLAN offers a measure of mitigation remedy for this type of exploitation.Q
. Explain why convertible bond deals are included in the PLAN.A
. When a convertible bond is converted into common stock at the discretion of the bondholder or by a forced conversion exercised by a public corporation, who issued the bond, the stock comes in the form of newly issued securities. Since a public corporation receives share capital upon the new issuance of stock, it is exploiting share capital. The PLAN offers a suitable remedy for this measure of exploitation.Q
. Explain why DAFs are included in the PLAN.A
. A corporation may create a private or public foundation. Public foundations may create a donor-advised growth fund (DAF) to grant money to charitable causes. As a legal public corporation, a DAF may undertake an IPO and benefit from share capital. Any DAF, benefiting from an IPO or secondary stock issues, will be required to adhere to the PLAN. According to a National Philanthropic Trust (NPT) market overview, in 2019 the charitable assets in DAF funds totaled $141.95 billion, while donor contributions totaled $38.81 billion and grant money totaled $27.37 billion. These statistics indicate (after simple subtraction) that $103.14 billion of these funds were grown in the stock market over the long-term, where net losers in the stock market paid for the $103.14 billion of charitable assets in DAF growth funds. The PLAN offers a suitable remedy for this measure of exploitation.Q
. Will the PLAN allow the form of payment to satisfy a UBI fund obligation to be both cash and stocks?A
. Financial assets, including cash and cash equivalents, stocks, fixed assets and possibly crypto currencies may be considered by the administrative judge.Q
. If a private company undertakes an IPO, and in the future this same public company undertakes an M&A deal and/or a stock buyback, will this company be required in each deal to adhere to the PLAN?A
. Yes, each of these business deals are supported by the growth and expansion of share capital after benefiting from an IPO and secondary stock issues and will be reviewed on a case-by-case basis.Q
. Looking at the stock market as a whole on any given single trading day, is the market a zero-sum game?A
. Note: The below answer was generated by Bing Chat (AI) on (12/10/2023).
Let’s distill it down:
- One Zero-Sum Trading Day:
- On any given trading day, gains and losses offset each other. For every winner, there’s a corresponding loser.
- Net winners take money from net losers.
- 365 Zero-Sum Trading Days:
- If we sum up 365 such days, it appears as if the market is a zero-sum game. Money changes hands, but overall wealth remains constant.
- Net losers contribute to this cycle.
In this simplified view, the stock market indeed seems zero-sum (odds 50/50 %)Q
. So, that means the stock market is gambling?A
. Yes, legalized gambling. Because of its silence on the issue, Congress has exempted the stock market from illegality. The odds (50/50) of winning a coin toss may be fairly characterized as gambling, but it is important to note, the PLAN circumvents the gambling issue embedded in market mechanics. We mention it only to explain the concept of net winners and net losers in the market to better understand the PLAN.Q
. Generally, how many IPOs are there each year?A
. There were 480 IPOs on the U.S stock market in 2020, setting the record. Over 11% of these IPOs generated proceeds over $500 million. IPOs raised total proceeds of $145.3 billion in 2020. There were 232 IPOs in 2019, raising proceeds of $56.2 billion. There were 397 IPOs on the U.S. stock market in 2000, the previous record-setting year (Statista.com).Q
. Will the PLAN apply to "direct listing" public companies, which include SPACs, aka, blank check companies?
(Note: The comprehensive answer below was generated by Bing Chat on 12/24/2023.)A
. An alternative to IPOs, direct listing allows a company to go public without a block of stock being sold and therefore without new capital being raised. Although, new rules do allow direct listing companies to raise capital similar to an IPO. A direct listing gives founders, vested employee shareholders, and prior investors a path to liquidity.
Overview of SPACs:
- Definition: SPACs are unique entities formed with the sole purpose of raising capital through an initial public offering (IPO). Unlike traditional companies, SPACs do not engage in commercial operations themselves; instead, they exist to acquire or merge with existing private companies, thereby taking these private companies public.
- IPO Process Simplified: The SPAC structure allows private companies to become publicly traded without undergoing the usual IPO process, which can be complex and burdensome in terms of regulations and procedures.
How SPACs Work:
Formation: A group of sponsors, often experienced investors or industry experts, create a SPAC.
IPO: The SPAC goes public by selling shares to raise funds from investors.
Trust Account: The IPO proceeds are placed in a trust account.
Target Search: The SPAC management team actively searches for a private company to acquire.
Merger or Acquisition: Once a suitable target is identified, the SPAC merges with or acquires the private company, effectively taking it public.
Listing: The combined entity (the acquired company) lists on a stock exchange under the SPAC’s ticker symbol.
Investor Redemption Option: Investors who initially purchased shares in the SPAC during the IPO have the option to redeem their shares if they do not approve of the acquisition target. If the merger/acquisition does not occur within a specified timeframe, the SPAC liquidates, and investors receive their pro-rata share of the trust account.
Advantages of SPACs:
- Speed: SPACs offer a faster route to going public compared to traditional IPOs.
- Access to Capital: Private companies gain access to public markets and capital.
- Path to Liquidity: Founders, employees, and early investors can monetize their holdings.
- Flexibility: SPACs can raise additional capital post-merger, similar to IPOs.
Risks and Considerations:
- Transparency: SPACs may lack transparency regarding the target company’s financials and operations.
- Quality of Acquisitions: Not all SPAC acquisitions are successful; some may result in poor investments.
- Market Volatility: SPAC stocks can be volatile, especially around merger announcements.
- Dilution: Existing shareholders may face dilution due to new shares issued during the merger process.
Conclusion: In summary, SPACs provide an alternative path for private companies to go public, offering flexibility and speed. However, investors should carefully evaluate each SPAC’s management team, acquisition strategy, and target company before investing. As with any investment, due diligence is crucial.Q
. Will government-sponsored enterprises (GSEs) like Fannie Mae and Sallie Mac, which are publicly traded companies, be exempted from share capital allocation requirements under the PLAN.A
. The administrative judge will have the discretion to exempt publicly traded GSE's, if deemed appropriate.Addendum Note
“Of the 3,671 public corporations in the U.S. reported by the Wall Street Journal in 2017, there were only 8 black owned companies” (Investopedia).