Shareholder agreements and operating agreements contain a variety of knobs and levers, many of which a company’s founders hope never to invoke. Chief among them are the provisions for resolving disputes or deadlocks in decision-making on fundamental matters and the dissolution provisions. The former sets forth the roadmap for dealing with situations where there is disagreement among the decision-makers regarding actions fundamental to the business and operations of the company, and the latter sets forth the means and methods for disbanding the company and winding up its affairs (generally based on a vote of the stakeholders). Under ordinary circumstances, when a company’s end is near, its constituents amicably initiate the dissolution process without court intervention. However, on rare occasions, they may find themselves in an intractable deadlock as to whether dissolution is necessary or appropriate. Thus, one faction may ask a court to dissolve the company by judicial decree, while another faction may oppose that request. The Delaware Chancery Court visited upon one such occasion in the case of Acela Investments, LLC v. DiFalco. On May 17, 2019, the court issued its Acela decision, which offers a rare example of the circumstances under which the court may invoke its judicial dissolution powers.
The Dangers of Copy and Paste: Using Corporate Statutory Language in an LLC May Result in Unintended Consequences
Limited liability companies (LLCs) are famously referred to as “creatures of contract”, whereas the governance of a corporation is comparatively fixed by statute. When forming an LLC, the members have broad discretion to determine the substance and scope of fundamental features including management, tax and indemnification matters. Parties are largely free to draft an LLC’s operating agreement as they desire, and Delaware law will “give maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”
On April 10, 2019, the New York City Council adopted Intro No. 1253 – the largest effort in a series of bills known as the Climate Mobilization Act. Intro No. 1253 enacts new regulations to reduce the city’s current largest source of carbon emissions – the operation of buildings. (more…)
By: Franca Tavella
On June 21, 2018, the United States Supreme Court decided South Dakota v. Wayfair Inc., et al., which upheld South Dakota’s economic nexus law allowing the state to impose sales tax upon online retailers who sell goods into South Dakota but do not have a physical nexus with that state – i.e., property or employees in the state. In doing this, the Supreme Court overruled the physical presence requirement set forth in Quill Corporation v. North Dakota in 1992.
By: Adam Chelminiak
The Corporation Law Section of the Delaware State Bar Association recently published its proposed amendments to the Delaware General Corporation Law (DGCL) for 2019.1
The amendments reflect a broad effort to modernize the DGCL’s provisions addressing electronic documentation of actions and electronic transmissions of items such as notices and consents. The most significant changes contemplated by the proposed amendments are: (i) the introduction of safe harbor procedures for electronic documentation, execution and delivery of various acts and transactions; (ii) revisions to the default provisions for the delivery of stockholder notices; and (iii) revisions to the provisions governing delivery of stockholder consents by electronic submission. The proposed amendments also include important clarifying changes to the provisions of Section 141(f) with concern to board actions by written consent.
In an April 16, 2019 rejection of the trial court’s analysis in Aruba Networks, the Delaware Supreme Court further clarified its recent pronouncements regarding the use of deal pricing as a measure of fair value in statutory appraisals under section 262 of the Delaware General Corporation Law. When a tender offer is made for a target company’s stock, section 262 provides a mechanism for dissenting stockholders to seek judicial appraisal of their stock rather than accepting the deal pricing. The court is charged with valuing the target company as an ongoing business at the time of the transaction, without regard to post-transaction events or any other business combination. In short, a section 262 appraisal should value the target company as a going concern and not as would be valued by a third party in an acquisition. (more…)
By: William Hussey
While April 15th is the due date by which most taxpayers have to file and pay any taxes due for 2018, April 16th marks “Tax Freedom Day” for United States taxpayers this year. Tax Freedom Day is the date each on which U.S. economic output equals the aggregate federal, state and local taxes (some $5.2 trillion) due to all the governmental entities that impose them. So, it is time to celebrate as we are now (largely) working for ourselves for the rest of the year! (more…)
Delaware Chancery Court Opens Discussion of Enhanced-Independence Director Deference for Controller Transactions
By: Marc Casarino
Delaware courts evaluate a self-dealing transaction with a controlling stockholder through the lens of entire fairness — meaning that both the deal process and price must be deemed fair. The burden of proving entire fairness lies initially with the board of directors and can be a challenging standard to satisfy. There presently are only limited means to blunt the onerous burden of the entire fairness standard. For example, the board of directors can shift the burden of proof to a challenging party if the transaction was approved by a majority of the minority stockholders or by an effective special committee of disinterested directors. Alternatively, where completion of the transaction is predicated at the outset of negotiations upon approval of the majority of the minority stockholders and an effective special committee of disinterested stockholders, the court will defer to the business judgment of the board rather than require proof of entire fairness. (more…)
By: Jeremy M. Miller
In early 2019, J.P. Morgan became the first major United States bank to successfully test a digital coin (the “JPM Coin”) designed to modernize the future of instantaneous payments in commercial transactions. The JPM Coin is neither an official currency nor backed by the full faith and credit of the U.S. government, unlike the dollar. The JPM Coin can be analogized to a “token” and is based on the concept that one JPM Coin held in a JPMorgan Chase N.A. account is considered the equivalent of one dollar. The value of a JPM Coin does not fluctuate like a stock trading in the market. (more…)
New Amendment to NJ Law Against Discrimination Renders Common Employment Agreement Provisions Unenforceable
New Jersey employers should take note of a newly enacted amendment to the New Jersey Law Against Discrimination (LAD) that directly impacts employment agreements and settlement agreements of discrimination claims. The amendment was signed by Governor Phil Murphy on March 18, 2019 and is effective immediately.
- Delaware Chancery Court Relies Upon Judicial Dissolution Power to Break Management Deadlock
- The Dangers of Copy and Paste: Using Corporate Statutory Language in an LLC May Result in Unintended Consequences
- New York City Council’s Carbon Emissions Regulation Opposed by Real Estate Board
- Economic Nexus Laws: Following Wayfair, US States Take Action
- 2019 Proposed Amendments to the Delaware General Corporation Law