Outright purchases are acquisitions of less than 5% of a company’s outstanding shares. They can generate income or be used to acquire controlling interest. Regulations require investors to file documents when acquiring a cumulative percentage of shares, making it harder for corporate invaders to take over companies without notice. The SEC sets guidelines for purchases exceeding 5%, giving target companies an opportunity to determine whether an acquisition is desirable. Regulatory agencies ensure a level playing field between target companies and corporate invaders.
Outright purchases are generally defined as acquisitions of less than five percent of the outstanding shares of a given company. The doorstep purchase serves to establish the acquiring company’s interest in the corporation. It is not uncommon for companies to purchase property in other corporations as a means of generating a steady stream of income in the form of investment income or dividends.
However, buying locally may not simply be a means of diversifying investments and creating steady income streams. Corporate invaders will often use a series of purchases to quickly acquire a sizeable amount of controlling interest in a given company. In decades past, a series of low-profile purchase transactions would allow a raider to take control of a company before notice was taken. Fortunately, that is no longer the case.
Today, many countries have established regulations that require investors to file documents with a government agency when a cumulative percentage of outstanding shares in a given company are acquired. Often, there is also a requirement for the investor to provide a written statement to the company in question regarding the reasons for acquiring a higher percentage of shares. This approach has made it more difficult for invaders to take over companies without the knowledge of the owners and officials of the targeted company.
In the United States, the Securities and Exchange Commission sets the guidelines for what is and is not considered a walking purchase. When purchases exceed five percent, the SEC requires the investor to submit documents indicating the ultimate objectives associated with the purchase. At the same time, this information is provided to the target company.
This procedure does not prevent any corporate takeover attempts. However, it does provide the target company with an opportunity to determine whether an acquisition is desirable and to take steps to prevent it from occurring if deemed to be the best course of action. By defining a local buyout as less than five percent of the outstanding shares, regulatory agencies essentially ensure that the playing field between target companies and corporate invaders is level one, with both parties having an equal opportunity to emerge as the victor in the takeover bid.
Smart Asset.
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