Taking Care of Business – Emerging legal issues impacting the business community.

13 Jan

Corporate Transparency Act and Implications for Entity Formation and Transaction Structures

Business, Regulation

By: Jennifer R. Santangelo, Lori S. Smith and Jeremy M. Miller

As the 116^th United States Congress came to a close, in its final hours, and skipping weeks of political drama for purposes of this post, the legislative body took the unprecedented step and overrode a presidential veto for the first time during the Trump Administration to pass the National Defense Authorization Act for Fiscal Year 2021 (the Defense Act). Included in the Defense Act is the Corporate Transparency Act (the CTA). The CTA, which was initially introduced by the House of Representatives in 2019, seeks to provide appropriate safeguards to identify bad actors engaged in terrorism, money laundering, sex trafficking and other heinous acts through “shell companies” that are not actually engaged in a bona fide business venture but instead are created for the principal purpose of shielding the owners from liability for engaging in illicit behavior and, in many cases, their identities. (more…)

16 Dec

Nasdaq’s Giant Leap Towards Diversity on the Board

Business, Regulation

By: Alexandria E. Kane and Jeremy M. Miller

Following the lead of California, Illinois and other states, Nasdaq, which is home to some of the largest companies in the world including Amazon, Google and Facebook, may require diversity on the board of directors of those companies. Earlier this month, Nasdaq submitted to the Securities and Exchange Commission (SEC) its proposal to require at least two diverse board members and certain disclosure requirements on the 3,000+ public companies that trade on the Nasdaq exchange. Currently more than 75% of Nasdaq’s listed companies do not meet this requirement. (more…)

08 Dec

The Marijuana Opportunity Reinvestment and Expungement Act of 2019

Cannabis

By: Christopher Wisniewski and Ryan J. Udell

In a first for Congress, on December 4, 2020, the U.S. House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement Act of 2019 (MORE Act) by a vote of 228-164. The MORE Act effectively legalizes cannabis by requiring it to be removed from the list of scheduled drugs under the Controlled Substance Act (CSA). (more…)

12 Nov

IRS to Allow “Workaround” to Deduction Limits for State and Local Income Taxes

Tax

By: John J. Eagan and L. Stephen Bowers

The Tax Cuts and Jobs Act (2017 Tax Act) limited the deduction of state and local taxes to $10,000 for individuals. Several states, including Connecticut, New Jersey and Maryland, have passed legislation that imposed income tax on a pass-through entity (PTE) such as on an S corporation, a partnership or a limited liability company taxed as a partnership. The PTE deducts the income tax, which then reduces the taxable income allocable to the PTE shareholders and partners. The PTE shareholders and partners then typically receive a credit on their state income tax returns for their share of the taxes paid by the PTE. (more…)

19 Oct

Finders May Finally Be Keepers: SEC Proposes Rules Allowing for Unregistered Broker-Dealers to Participate in Capital-Raising Transactions Under Certain Circumstances

Regulation

By: Alexandria E. Kane and Jamie Wang

The ability to raise capital is one of the most critical challenges facing small businesses in the U.S. today. Capital can allow for exponential growth of a well-run startup with a good idea, but the lack of capital is the death knell for many others. While many small companies initially rely on friends and family for funding, there has perennially been a gap between raising money from those in your immediate circle and working with investment bankers who are registered broker-dealers for larger rounds of funding. In years past, unregistered finders stepped in to fill this gap despite the legal challenges involved. The role and responsibilities that a finder can legally undertake is a gray area. To the chagrin of their lawyers, companies often “looked the other way” and risked sanctions, possible rescission of offerings and other penalties in order to get the capital they so desperately sought. The problem of unregistered finders has been discussed by the Securities and Exchange Commission (SEC) for decades but, until the new rules proposed by the SEC on October 7, 2020, they did little to provide relief to small companies seeking to raise private placement funds through the use of finders.
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19 Oct

Update on Cannabis Reform Introduced as a Response to the COVID-19 Crisis

Business, Cannabis

By: Christopher Wisniewski and Ryan J. Udell

On September 28, 2020, House democrats released an updated version of the Economic Recovery Omnibus Emergency Solutions Act (the HEROES Act) to address needs that have developed since its introduction on May 15, 2020. The updated version continues to include cannabis reform in the form of reintroducing the Secure and Fair Enforcement Banking Act (the SAFE Act), with the purpose “to increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such business.” As with the introduction, the same ambiguities, problems and hurdles to Senate approval still exist as identified in our June 18, 2020 post, and passage appears unlikely.

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23 Sep

Public Benefit Corporations and the ESG Movement

Business, Delaware

By: Carl Koerner

My colleague, John McCarrick, an expert on director and officer responsibility, recently gave a talk about emerging issues in D&O liability and discussed the impact of the ESG movement. ESG is an acronym for Environmental, Social and (Corporate) Governance. The movement asks business enterprises to extend their purview beyond financial success to address issues of public concern, such as global warming or racial injustice. John was asked by a program participant whether the ESG movement might force more companies to reorganize as public benefit corporations (PBCs). (more…)

02 Sep

Department of Labor Releases Fiduciary Guidance

Business

By: L. Stephen Bowers

On Monday, August 31, 2020, the Employee Benefits Security Administration of the United States Department of Labor (DOL) released a proposed regulation governing the conduct of employee benefit plan fiduciaries (the “Regulation”). Specifically, the Regulation restricts the manner in which fiduciaries of employee benefit plans governed by ERISA exercise shareholder voting rights, including proxy voting power, on securities owned by such plans. (more…)

24 Aug

Move Over California, Delaware Law Applies to Internal Corporate Affairs

Contracts, Delaware, Tax

By: Marc S. Casarino, Lori S. Smith and Jeremy M. Miller

The Delaware Court of Chancery recently made news when it ruled that Delaware law, not California law, applied to a minority shareholder’s request to inspect the books and records of a Delaware corporation with its principal place of business in California. In Juul Labs, Inc. v. Daniel Grove ^[1], the principal substantive issue was whether Daniel Grove (Grove) waived his inspection rights concerning Juul Labs, Inc., a Delaware corporation (Juul Labs), with its principal place of business in San Francisco, California. Grove contended, among other things, that California Corporations Code Section 1601 applied, which expressly permits inspection rights of a corporation with its principal place of business in California, irrespective of the corporation’s domicile. ^[2] Juul Labs argued that Grove allegedly waived his inspection rights under certain private option and investor agreements, the California law is not applicable and Section 220 of the Delaware General Corporation Law applies,^[3] and the exclusive forum selection clause in Juul Labs’ certificate of incorporation must be enforced.

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05 Aug

Successor Liability in the Pandemic Era

COVID-19

By: Thomas B. Fiddler and Morgan S. Birch

If the 2008 recession gives us the ability to predict anything about upcoming trends in commercial litigation, it is that healthy companies, which normally would not be targeted as defendants, will be sued because the primary wrongdoers are judgment proof. Businesses that are owed money from defunct companies are unlikely to accept substantial losses without exploring ways to collect their debt from third parties, whose liability may not be readily apparent. Under the law of most states, there are a variety of legal theories that can be used to potentially recover from third parties. Successor liability is one such theory. (more…)

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