Federal Securities Law Source

SEC’s updated guidance on changing the date, time or location of annual shareholders’ meeting

On March 13, 2020, in response to the recent outbreak of the coronavirus disease (COVID-19), the Securities and Exchange Commission released guidance providing regulatory flexibility to reporting companies seeking to change the date, time, or location of annual shareholder meetings and use new technologies, such as “virtual” shareholder meetings, that avoid the need for in-person meetings. Given the public health and safety concerns related to COVID-19, the Commission provided guidance for reporting companies on how to meet their obligations under the federal proxy rules. Continue Reading

Coronavirus and securities compliance related considerations

On March 4, 2020, the Securities and Exchange Commission issued an Order granting conditional relief from certain filing obligations under the federal securities laws for reporting companies whose compliance may be delayed by the coronavirus disease (COVID-19). In the press release accompanying this unprecedented Order, SEC Chairman Jay Clayton noted, “The health and safety of all participants in our markets is of paramount importance. While timely public filing of Exchange Act reports is a cornerstone of well-functioning markets, we recognize that this situation may prevent certain issuers from compiling these reports within the required timeframe.”

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Recent IRS guidance affects corporate tax deductibility of public company executive compensation arrangements and related proxy statement disclosures

Publicly traded companies have long been concerned with Internal Revenue Code Section 162(m) in order to maximize the deductibility of compensation paid to certain covered officers. Last year’s tax reform act made significant changes to Code Section 162(m). The IRS also recently published a Notice that explained some of these changes in more detail. To address these issues, public companies may need to review their administrative practices, particularly how they keep track of their covered officers (which now include CFOs) and executive agreements. Also, because there no longer is a performance-based exception, they may want to consider revising their incentive plans to address business goals rather than former 162(m) requirements. Before doing so, however, they will want to make sure they don’t cause exempt agreements to lose their grandfathered status under the prior Code Section 162(m) requirements.

Our companion blog, Employee Benefits Law Report, summarizes these changes and identifies the steps public companies should take to respond to them. Read the full article here. 

Virtual shareholder meetings: advantages, disadvantages and practical considerations

As spring approaches, so do annual shareholder meetings for many public companies. Traditionally, these meetings were held in-person. However, due to fairly recent advances in technology, companies now have the option to hold these meetings exclusively online or by providing for online participation, which both offer advantages and disadvantages to shareholders and company leaders. Furthermore, not all state corporate statutes permit a virtual component, and those that do may impose specific requirements. With an increasing amount of public companies adopting virtual components, key stakeholders in today’s public companies should understand the advantages, disadvantages and any important practical and legal considerations to take into account- before deciding to take the virtual leap. Continue Reading

How to avoid registration under the Investment Company Act of 1940

One of the worse situations a company may face to be determined to be an investment company under the Investment Company Act of 1940, as amended (the act). If determined to be an investment company, the company is subject to the full regulation under the act. In addition, a company may inadvertently become an investment company; in such a case, all of its contracts are potentially voidable and it cannot engage in any other business. Generally, companies inadvertently become investment companies by virtue of their investments in certain securities which trigger the act’s 40 percent test.

Many times a number of companies fall within the definition of an investment company because operating companies have large amounts of assets invested in cash management instruments, government securities and money market funds. Continue Reading

SEC seeks to regulate transactions utilizing cryptocurrencies under federal securities laws

Any person who regularly monitors the U.S. financial markets has likely noticed the recent emergence of digital currency, also referred to as “cryptocurrency,” in recent months. For example, the price of bitcoin, the most widely known form of cryptocurrency, surged from a price below $800 per bitcoin in 2016, to a remarkable $17,000 per bitcoin recently in 2017. Despite this potential volatility, the acceptance of cryptocurrencies as legitimate forms of currency is likely; as evidenced by an array of local, national and international markets as well as an increasing range of products and participants, associated with these currencies. With the potential for these currencies to be used in everyday transactions, many questions are raised. What are cryptocurrencies? Can cryptocurrencies and their associated products be used to secure investments? And if so, can secured investments using these products be regulated? The commissioner of the Security Exchange Commission (SEC) released a statement in December 2017 addressing these issues, and many of the answers depend on the familiar adage: substance over form. Accordingly, one contemplating a transaction utilizing cryptocurrencies should first consider how these currencies might be regulated. Continue Reading

How to structure a joint venture

Joint ventures should be considered as an alternative to an acquisition if the acquiring party feels it does not have the experience or the business risk appetite to do it individually. They have the benefit of allowing parties to have greater success working together on a specific project than if they did it themselves.

Benefits of a joint venture

There are many benefits of entering into a joint venture. Some of them include: Continue Reading

Boilerplate provisions in a contract

The term “boilerplate” refers to standardized language in a contract that usually appears at the end of the agreement (often in a section titled “miscellaneous” or “general terms”). While boilerplate provisions are common clauses in a contract, they should always be checked carefully and tailored to the particulars of the situation as they will address important issues that will be determinative of the parties’ rights with respect to the business contract. You should remember that every clause in a contract may be negotiated – even the boilerplate provisions. Continue Reading

Methods to minimize indemnification obligations

Because most indemnification claims are made by a buyer, the seller seeks to limit its indemnification obligations. Some ways in which the indemnification obligations can be limited include:

  • Materiality of breach or claim amount
  • Caps on indemnification
  • Baskets
  • Payment adjustments for insurance proceeds or tax benefits

Sellers often like to include materiality qualifiers in the indemnification clause as to the claim amount and the type of claim. These qualifiers serve the purpose of limiting the right of the buyer to indemnification. Continue Reading

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