January 2024 in Brief: International Business Law

Transposition of the European Mobility Directive into Dutch Law

By Tim B. Schreuders and Martijn Koot, Heussen

On September 1, 2023, the Act on the Transposition of the Directive on cross-border conversions, mergers, and demergers (the “Act”) entered into force. The purpose of the Act is to transpose European Directive (EU) 2019/2121 (the “Mobility Directive”) into Dutch law. The Mobility Directive, which entered into force on January 1, 2020, aims to promote freedom of establishment for capital companies within the European Union (“EU”), while also strengthening the rights of stakeholders. This is achieved by introducing new rules on cross-border conversions and demergers and adapting the already existing rules on cross-border mergers.

Although the Netherlands did not have a legal framework for cross-border conversions and divisions before the Act entered into force, in practice, such transactions were already taking place, pursuant to case law of the European Court of Justice. However, the lack of a legal framework made the implementation of cross-border conversions and demergers difficult, and their effectiveness was to a certain extent legally uncertain.

The Mobility Directive does not apply to legal persons other than limited liability companies. Similar to the Mobility Directive, the Act only applies to public and private limited companies. Furthermore, the foreign companies involved in the merger, division, or conversion must be capital companies incorporated under the law of another member state of the EU or the European Economic Area. In the case of demergers, the Act provides that a cross-border demerger whereby an existing company is the acquiring company is not possible, so that only demergers with newly incorporated acquiring companies are possible.

The process concerning cross-border mergers, demergers, and conversions comprises three stages:

1. The preparatory phase, which includes the preparation of a proposal; a written explanation and a notification to shareholders, employees, and creditors; and the deposit of relevant documents for inspection.
2. The decision-making phase, in which the general meeting resolves on the proposed cross-border transaction.
3. The executive phase, which includes the issuance of a pre-transaction certificate and a final certificate, the execution of the notarial deed, and making the necessary entries in the commercial register and other public registers

The Act designates the civil law notary as the competent authority in the Netherlands to issue the pre-transaction certificate and the final certificate. In connection with the pre-transaction certificate, the notary must perform, among other things, a fraud test, which test does not exist in the already existing statutory regulations on cross-border mergers. If the notary establishes that the proposed merger, demerger, or conversion is being used for unlawful or fraudulent purposes, they must refuse to issue the pre-transaction certificate,as a result of which the proposed cross-border transaction is prevented from proceeding. In the final certificate, the civil law notary confirms that all statutory requirements regarding the relevant cross-border conversion, mergers, or demerger have been satisfied.

The Act also provides for certain safeguards for shareholders, employees, and creditors.

Amendments to Mexican Securities and Investment Funds Laws; Minimum Wage in Mexico Increased for 2024

By Luis Armendariz, De Hoyos Aviles

2024 starts with two notable legal developments in Mexico: (1) amendment to securities and investment funds law, and (2) an increase in the minimum wage.

On December 28, 2023, a decree that amends the Securities Market Law and the Investment Funds Law was published in Mexico’s Federal Official Gazette. These changes are aimed at facilitating greater access to the stock market by small and medium-sized companies, providing them with accessible public financing alternatives.

The changes institute a simplified securities listing process, as well as introducing initial legal provisions for hedge fund–like structures. The former will allow small and medium-sized companies to access the stock market through simplified public offerings of securities, either of debt or stock. This new modality simplifies the process of listing on the stock market, making it faster and at a lower cost. Regarding the hedge fund provisions, the purpose of this new type of fund is to incentivize capital markets, offering new investment and financing options. Read more about these and other changes here.

On another front, on January 1, 2024, a 20 percent increase in the minimum wage became effective nationwide. This increase applies to the general and professional wage, both in the northern border (MX $374.89, or about USD $21.86) and the rest of the country (MX $248.93, or USD $14.51).

Updated Disclosure Obligations under India’s Capital Market Regulations

By Vishal Gandhi, Gandhi & Associates

India’s capital market regulator, the Securities and Exchange Board of India, amended the regulations relating to the listing obligations and disclosure requirements of listed companies in 2023, with the amendments largely taking effect between July and December 2023. Some of the key amendments are as follows:

1. Listed companies are required fill certain key roles, such as Compliance Officer, Director, Independent Director, Chief Executive Officer, Managing Director, Whole Time Director, Manager, and Chief Financial Officer, within three months from the occurrence of any vacancy.
2. Starting from April 1, 2024, the top 250 listed companies must respond to any mainstream media reports suggesting rumors of a specific material event or information. They are required to confirm, deny, or provide clarification within twenty-four hours of the report.
3. Instances of cybersecurity incidents, breaches, or the loss of data or documents must now be disclosed in the reports specified by regulations.

For further information, please contact the author.

Reporting Requirements under the Corporate Transparency Act Come into Effect for Domestic and Foreign Companies Doing Business in the US

By Megan H. Roberts, Elizabeth Tabas Carson, David Buck, David Solow, and Eno M. Usoro, Sidley Austin LLP

Under rules that took effect on January 1, 2024, many domestic and foreign companies doing business in the United States will need to make federal filings identifying and providing information about their beneficial owners and company applicants or face civil or criminal penalties. The rules under the CTA (including the applicability of the various exemptions) are complex, such that the obligations may differ significantly based on the specific ownership and control structure of a company.

Background

The Corporate Transparency Act (CTA) was enacted by Congress on January 1, 2021, as part of the Anti-Money Laundering Act of 2020 and was intended to combat the use of shell companies by persons seeking to evade anti-money laundering and economic sanctions laws. The Financial Crimes Enforcement Network (FinCEN) issued a final rule (as amended, BOI Rule) implementing Section 6403 of the CTA. The CTA and BOI Rule require certain companies to file reports with FinCEN identifying, and providing information about, their “beneficial owners” and “company applicants” as defined in the CTA and BOI Rule.

Who Must Report?

Beneficial ownership information (BOI) reporting requirements under the CTA and BOI Rule require a reporting company to file a report with FinCEN with information on the reporting company itself, every individual who is a beneficial owner of such reporting company, and, for entities formed or registered on or after January 1, 2024, every individual who is a company applicant with respect to such reporting company.

A “reporting company” is defined to mean a domestic or foreign reporting company. A domestic reporting company includes any entity that is a corporation, limited liability company, or other entity created by filing with a secretary of state or similar office. A foreign reporting company includes any entity formed under the laws of a foreign jurisdiction that is registered to do business in the United States by filing with a secretary of state or similar office.

Exemptions from Reporting

The BOI Rule includes twenty-three categories of exemptions from the definition of “reporting company,” principally for entities already generally subject to substantial federal or state regulation under which beneficial ownership may be known, such as certain entities registered with the Securities and Exchange Commission (SEC) and a category of “large operating companies.” The “subsidiary” exemption applies to certain entities whose ownership interests are “fully controlled” (as clarified in a FinCEN FAQ published on January 12, 2024, rather than the BOI Rule) or “wholly owned,” directly or indirectly, by one or more other exempt entities (excluding pooled investment vehicles and certain other exempt entities). Accordingly, the “subsidiary” exemption is quite narrow. Similarly, to qualify for the “large operating company” exemption, in addition to having an operating presence at a physical office in the United States and $5 million of gross receipts or sales as reflected on filed tax returns for the prior year, a company must have more than twenty full-time employees; however, consolidation of subsidiary employees is prohibited, meaning that a US-based company that satisfies the minimum amount of gross sales or receipts will not be exempt from reporting if its employees are employed through a separate subsidiary.

Timeline for Reporting

Companies that are formed or registered, as applicable, on or after January 1, 2024, and prior to January 1, 2025, are required to file a report within ninety calendar days of the date of formation or registration under applicable law. Companies that are formed or registered, as applicable, on or after January 1, 2025, are required to file a report within thirty calendar days of the date of formation or registration under applicable law. For companies in existence before January 1, 2024, reports must be filed no later than January 1, 2025. The BOI Rule also requires a reporting company to update a report within thirty days if there are changes concerning the reporting company (including changes to its status as a reporting company) or its beneficial owners, and to correct inaccurately filed information.