BLT: August 2018

 

Feature Articles

Business & Corporate

Gotcha! Caught in the Explicitness Trap

If rules of explicitness merely required transacting parties or their lawyers to add a few words to the written agreements they draft, the rules would perhaps be of little consequence. However, some of the rules impose substantial impediments to perfectly legitimate transactions. Others are not widely known, particularly by transacting parties that draft their own documents, and therefore function as traps for the less informed. They surprise lawyers and frustrate parties’ expectations, much like secret liens. This article identifies and critiques several of these rules.

Business & Corporate

Breaking Up Is Hard to Do: The Role of Non-Compete Agreements When Employees Leave to Work for the Competition

Non-compete agreements are contractual restrictions that control employees’ future ability to work for competitors of their current employers, who seek to protect their financial interests and trade secrets. While employers traditionally reserved non-compete agreements, or restrictive covenants, for high-level employees whose departures could present a fiscal impact to the company, non-compete agreements are now common with various levels of employees.

Taxation

Charging Orders and Taxes: Some of the Answers May Surprise You

Most post-judgment enforcement remedies employed by creditors result in easily understood and predictable tax consequences to the parties involved. A charging order is different, however, because it peculiarly combines two remedies; namely, an involuntary lien (attachment) against the debtor's interest in an LLC or partnership, and a non-wage garnishment of the income stream from that interest such that the creditor receives the distributional income and not the debtor. To add to the confusion, in the majority of states the charging order lien may be foreclosed by way of a judicial sale at which the creditor or a third-party may be the winning bidder. All of these actions may result in unforeseen tax consequences to the affected parties as the following article demonstrates.

Business & Corporate

Representing Minority Members of an LLC in Negotiating an LLC Agreement

For purposes of this article, a minority member is a member who does not have voting control or the power to exercise voting control over the limited liability company that the minority member is joining or has joined. This article identifies those provisions that may be important to a minority member and may be subject to negotiation.

Business & Corporate

Start Up or Clean Up? Establishing and Maintaining the Corporate Shield

If your client is an entrepreneur or a start-up, the first and most important step he or she can take to avoid personal liability for the financial obligations of the business is to form an entity, such as a corporation or limited liability company, to create a corporate shield. Most entrepreneurs appreciate the many benefits of forming a legal entity for the operation of their new business venture, such as shielding themselves from the liabilities of the business and providing a framework for raising start-up capital and working with co-founders, but they are also highly motivated to avoid unnecessary taxes and regulations, and legal fees for that matter, so these days it is not uncommon for a start-up client to wait until after he or she has formed an entity to hire legal counsel. In these cases, the first order of business with the new client is often a determination of whether the right choices were made with regard to form of entity and state of formation and, if not, whether it worth changing.

Business & Corporate

Sin Eaters, Moles, and Eternal Damnation: Europe’s Quasi-Religious War Against U.S. Internet Companies

The right to privacy has become a semi-religious European principal for maintaining a civilized society. The EU’s recent passage of the General Data Protection Regulation tightens privacy rules, adds new rights for its residents, and provides a series of new enforcement tools. The GDPR enables the EU to attack extraterritorially and punish U.S. businesses for violating it, including unique and unprecedented penalties and enforcement measures.

Business & Corporate

Senior SEC Official Provides Regulatory Clarity for Digital Assets

Can a digital asset offered as a security become, over time, something other than a security? Director of the Division of Corporation Finance of the Securities and Exchange Commission William Hinman recently gave a speech answering in the affirmative and offering a framework for evaluating token sales under the Howey test. Importantly, Hinman’s speech clarifies the legal standard and factual details that the SEC is likely to consider when evaluating a token sale.

Business & Corporate

SEC Amends Rule 701's Additional Disclosure Threshold from $5 Million To $10 Million—More Changes on the Horizon

The threshold in excess of which a private company is required to deliver additional disclosures to employees in a compensatory securities offering is now $10 million. This change was no surprise, given that it was congressionally mandated under the Economic Growth, Regulatory Relief, and Consumer Protection Act signed into law in May 2018. However, this and other changes have signaled the SEC’s willingness to consider ways to modernize its regulation of compensatory securities offerings and sales.

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