Business and Corporate

An Operating Agreement is an agreement among the members of a limited liability company that defines the LLC’s management structure and governs the operation of the LLC, including the members’ contractual rights, obligations, and restrictions relating to their membership interests in the LLC.  An LLC with only one member may use a simple short-form Operating

A recent United States Supreme Court decision handed down in May addressed what occurred when contract, bankruptcy, and intellectual property laws intersected.[1] In Mission Products Holdings, Inc. v. Tempnology, LLC nka Old Cold, LLC, the Supreme Court was presented with the question of whether a debtor’s rejection of an executory contract rescinded the

Yesterday (March 25, 2014), the Supreme Court heard oral arguments in Sebelius v. Hobby Lobby Stores, Inc. (“Hobby Lobby”) and Conestoga Wood Specialties Corp. v. Sebelius (“Conestoga”), two consolidated cases which challenge requirements under the Affordable Care Act (“ACA”). Specifically, each case involves private companies that challenge the federal health care law’s mandate that employee

On February 12, 2014, President Obama followed up on comments made during his State of the Union address and signed an Executive Order increasing the minimum wage for employees of federal contractors. The Order, which increases the minimum wage from $7.25 to $10.10 per hour, covers all employees who perform services or construction work under

For most startups and emerging companies, fundraising continues to be challenging. With the passage of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), Congress tasked the Securities and Exchange Commission (the “SEC”) with revamping federal securities laws to make fundraising more accessible for small companies in attempt to help create jobs. Recently, the SEC has implemented and proposed new and revised securities laws to achieve this mandate. While not all of these rule changes make life easier for small companies seeking to raise capital, some of the rules do potentially provide new fundraising alternatives for small companies. Companies and investors should also be aware that certain new rules impact established practices and, predictably, there are new pitfalls to avoid. This post briefly introduces some of the recent developments in unregistered offerings and provides some key takeaways for companies and investors to consider.

Background: The JOBS Act

As a reference point, the JOBS Act consists of the following five parts or Titles: Title I is the so-called “on-ramp” to the initial public offering (“IPO”) process for emerging growth companies that introduced certain relaxed disclosure and audit requirements (this topic is not covered in this post); Title II tasked the SEC to promulgate rules to lift the ban on general solicitation in effect under existing private placement exemptions; Title III created an exemption for crowdfunding offerings; Title IV tasked the SEC with improving the Regulation A offering exemption; and Title V increased the limit on the number of shareholders a company may have before it triggers public reporting requirements.

Traditional Regulation D Private Placements

Companies seeking to raise capital through the offer and sale of securities must either register the securities offered with the SEC under the Securities Act of 1933 (the “Securities Act”) or rely on an exemption from registration. Historically, when small companies raised funds from private investors in unregistered offerings, such offerings were generally conducted as private placements exempt from registration under Rule 506 of Regulation D under the Securities Act, which allows an unlimited amount of capital to be raised from an unlimited number of accredited investors (and up to 35 sophisticated non-accredited investors).(1)  One of the requirements of former Rule 506, now revised Rule 506(b), is that a company cannot engage in general solicitation or advertising in connection with the offering.Continue Reading Jumper Cables: Recent Developments in Securities Laws Aim to Boost Small Company Fundraising

On February 10, 2014, the Treasury Department released final regulations on the employer mandate provisions under the Affordable Care Act (a.k.a. Obamacare). While the final rules retain much of what was outlined in the proposed regulations issued in December 2012, the most significant news is the additional one-year delay for certain covered employers with respect

In Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, the Delaware Court of Chancery held that in a merger under Delaware law, privilege over the absorbed corporation’s communications with its counsel, including those relating to acquisition by the surviving corporation, pass to the surviving corporation.

The case arose from a suit filed by Great Hill Equity Partners IV, LP, et al. (the “Buyer”), alleging that former shareholders and representatives of Plimus, Inc. (the “Seller”) fraudulently induced the Buyer to acquire Plimus, Inc. (“Plimus”). Plimus was the surviving corporation in the merger.

After the Buyer brought the suit, a full year after the merger, it notified the Seller that, among the files on the Plimus computer systems that the Buyer acquired in the merger, it had discovered certain communications between the Seller and Plimus’s then-legal counsel regarding the transaction. During that year, the Seller had done nothing to get these computer records back, and there was no evidence that the Seller took any steps to segregate these communications before the merger or excise them from the Plimus computer systems. Additionally, the merger agreement lacked any provision excluding pre-merger attorney-client communications from the assets of Plimus that were transferred to the Buyer. Nonetheless, the Seller asserted the attorney-client privilege over those communications on the ground that it, and not the surviving corporation, retained control of the attorney-client privilege that belonged to Plimus for communications regarding the negotiation of the merger agreement.Continue Reading Ownership of Attorney-Client Privilege Following Merger

The Supreme Court of Louisiana, in Ogea v. Merritt, 2013 WL 6439355 (La. 12/10/13), provided guidance regarding the personal liability of members of an LLC, reversing a lower court decision and finding a member of an LLC not personally liable for damages resulting from that member’s performance of a contract in the name of the LLC.

Travis Merritt, the sole member of Merritt Construction, LLC, signed a contract with Mary Ogea to build a home on an undeveloped parcel of land owned by Ms. Ogea. After problems with the foundation became apparent, Ms. Ogea filed suit against the LLC and against Mr. Merritt individually. Following trial, the district court rendered judgment against both Mr. Merritt, personally, and the LLC “in solido” for various items of damages. The district court found that Mr. Merritt personally performed some of the foundation work and failed to properly supervise the subcontractor who actually poured the concrete, providing grounds for Mr. Merritt’s personal liability. The court of appeal affirmed, but the Supreme Court then granted a writ to address the extent of the limitation of liability afforded to a member of an LLC.Continue Reading Personal Liability of Members of an LLC – Louisiana Supreme Court Provides Guidance