Ethics discussion: Stocks

The par value assigned to a share of stock bears no relationship to the market value of that share of stock (i.e., the price at which the stock sells to an investor/owner.) The market value, however, should reflect some real or perceived value of the corporation.
Gigi Liken and Ron Bobo are organizing Gold Unlimited Inc. to undertake a high-risk gold-mining venture in Canada. Gigi and Ron tentatively plan to request authorization for 75,000,000 shares of common stock to be sold to the general public. Gigi and Ron have decided to establish par of $1 per share in order to appeal to a wide variety of potential investors. Gigi and Ron feel that investors would be more willing to invest in the company if they received a large quantity of shares for what might appear to be a "bargain" price.
Discuss whether Gigi and Ron are behaving in a professional manner.

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My response:

Jill Stidd
26 Sep 08 2:07 PM MST

Given the description in our book on page 574 in regards to stock prices, “the price at which stock can be sold by a corporation depends on a variety of factors. 1. Financial record, earnings record, and dividend record of the corporation. 2. Investors expectations of the corporations earning potential. 3. General business and economic conditions and prospects.” (Warren, Reeve, and Duchac, p.574)

I would be important to know if Gigi Liken and Ron Bobo had any of these discussions or evaluations. That was not stated in the post exactly. However what was stated was that there reason was for determining the price of $1 was that the investors would be more willing to invest in the company if they received a large quantity of shares for what would be a “bargain” price. I also understand that this corporations was also a “high-risk” venture and that would be even more reason to create this “bargain” price, but if it does not fall under three factors stated then it is not appropriate and not ethical.Out text also states in regards to discounted stock this, “many states do not permit stocks to be sold at a discount, in others it may be done only under unusual conditions.”(Warren, Reeve, and Duchac, p.574)

I researched the web for whether it was legal to sell discounted stock in Canada and could not get a definite answer. But because our text does not even illustrate discounted stocks due the rareness I would have to say that Gigi and Ron were not deriving their price for the stocks for their company in the proper format and using the 3 guides listed above.

Warren, Reeve, and Duchac.( 2007). Accounting 11. Thompson South – Western.