Federal Securities Law Source

Paycheck Protection Program loan necessity questionnaire

Borrowers of Paycheck Protection Program (PPP) loans – together with their affiliates – who have loans in excess of $2 million and seek loan forgiveness will potentially need to complete necessity questionnaires according to the Small Business Administration. There are separate forms for for-profit and non-profit businesses and will likely affect 52,000 borrowers.

My colleagues Jack Beeler, Cat Rice and Jack Meadows explain the purpose and questions asked in these questionnaires in this law alert.

SEC proposes exemptions from registration for finders

On Oct. 7, 2020, the Securities and Exchange Commission (SEC) proposed a limited and conditional exemption from broker registration for natural persons, referred to as “finders,” who seek to help non-reporting, private companies raise capital from accredited investors in exempt offerings, subject to certain conditions. Generally, persons who effect transactions in securities for the account of others cannot do so through interstate commerce unless the person is registered with the SEC. There has long been ambiguity about when or if finders, who seek to bridge the gap between businesses and investors by identifying potential investment opportunities, must register as broker-dealers with the SEC. The proposed exemption seeks to clarify the role and obligations of finders so that small businesses can more easily connect with the investments they need to succeed. In the current market, small businesses often struggle to identify potential investors, and few broker-dealers are willing to raise capital in the smaller transactions.

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SEC amends definition of accredited investor

On Aug. 26, 2020, the Securities and Exchange Commission (SEC) adopted amendments to Rule 501(a), Rule 215 and Rule 144A of the Securities Act of 1933 (Securities Act). These amendments are part of the SEC’s efforts to more effectively identify qualified investors and allow for expanded investment opportunities, while still maintaining appropriate levels of investor protections.

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Delaware Supreme Court upheld federal forum provisions regarding Securities Act claims

Forum-selection provisions are common tools for corporations seeking to counteract potentially abusive shareholder litigation. Last month, the Supreme Court of Delaware held that Federal forum provisions, which require actions arising under the Federal Securities Act of 1933, as amended, to be filed in a Federal court, could survive a facial challenge. Continue Reading

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

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