Article prepared by and republished courtesy of our colleagues Andrew Weil, Alec Fraser and Bradley Phipps; originally published here: http://www.dlapiper.com/dodd-frank-affects-private-companies-too-practice-points-to-note/.
The Dodd-Frank Act – signed by President Barack Obama more than three years ago, and since then advanced with a host of rules and regulations – has been widely viewed as a law that addresses systemic risk in the financial system and enhances the corporate responsibility of public companies to shareholders.
Although the substantial majority of the corporate governance, executive compensation and disclosure provisions of the Dodd-Frank Act designed to enhance corporate responsibility apply to public companies, some private companies too are implementing similar controls in their governance structures. Certain private companies are opting to do this, and others are doing it because their investors demand it.
For private companies concerned about reviewing their governance structures in a post Dodd-Frank world, here is a capsule review of the relevant provisions of the Dodd-Frank Act that were crafted to enhance corporate responsibility, plus information on how they may affect private company governance structures. In addition, we take a look at the way the new derivatives regulations affect private companies. Continue Reading
As we’ve previously blogged, in July 2013 the SEC adopted rules that permit general solicitation and general advertising in connection with certain offerings of securities to accredited investors. Yesterday, to help the markets understand some common interpretative questions associated with these new rules, the SEC issued several new Compliance and Disclosure Interpretations. The new interpretations mainly address:
- when and how companies may switch between “old” Rule 506(b) (no general solicitation) and new 506(c) (general solicitation permitted),
- the need to amend Form D if such changes are made,
- the new Rule 506(c) exemption not being ruined by the subsequent discovery that an investor was not accredited, if the issuer had a reasonable belief the investor was accredited at the time of sale,
- and accredited investor verification issues.
The relevant interpretations are in Questions 260.05 through 260.13 — those of you following general solicitation of accredited investors may want to check it out.
There are also two new interpretations relating to Rule 144A (which now permits offering securities to persons other than “qualified institutional buyers,” or QIBs, by means of general solicitation if all sales are to QIBs), which are at Questions 138.03 and 138.04.
As this new and emerging area of law continues to mature, we’ll keep you posted on interesting updates.
Just a reminder that the temporary 100% exclusion for Federal capital gains tax on the sale of “qualified small business stock” (“QSBS”), under Section 1202 of the IRS regulations, is set to expire at the end of calendar year 2013.
The QSBS tax exemption was originally enacted to incentivize investment in certain small businesses by providing (non-corporate) investors the opportunity to exclude all or a portion of their gains from Federal capital gains tax in certain circumstances.
In order to qualify as QSBS, stock must be purchased from a domestic C corporation that (i) is engaged in an active trade or business (as defined by the IRS regulations) and (ii) has gross assets which do not exceed $50 million (measured when the stock is purchased). Further, in order to qualify for the tax exemption, the investor must hold the qualified stock for at least five years from the date of purchase. In addition, the timing of an investor’s purchase of the qualified stock will impact the amount excluded from Federal capital gains tax that may later apply when the stock is ultimately sold, according to the following percentages: Continue Reading
CONTRIBUTED BY Trent Dykes and Nathan Luce
Earlier today, the Securities and Exchange Commission (SEC) took an important step in making securities-based crowdfunding a reality for many small companies with the release of its proposed rules governing crowdfunding. The proposed rules, called “Regulation Crowdfunding,” were drafted in connection with Title III of the JOBS Act. Whereas traditional crowdfunding involves a company offering things like advanced product or information releases, premium services or the ability to contribute to a given cause in exchange for an investment, Regulation Crowdfunding would allow those same companies to issue actual securities (i.e., debt or equity) in exchange for investments—a dramatic shift from what has become fairly common practice on websites such as Kickstarter or Microryza over the past few years.
The SEC’s Regulation Crowdfunding proposal would implement rules governing the offer and sale of securities under new Section 4(a)(6) of the Securities Act of 1933 (Section 4(a)(6)). The proposal also provides a framework for the regulation of registered funding portals and brokers, whom issuers must use as intermediaries in their crowdfunding efforts pursuant to Section 4(a)(6). In addition, the proposal would exempt securities sold pursuant to Section 4(a)(6) from the registration requirements of Section 12(g) of the Securities Exchange Act of 1934. Continue Reading
Our colleague Ute Krudewagen has put together a list of some key labor and employment issues to consider if and when you decide to take your US-based emerging company to overseas locations.
So you are ready to expand?
Your start-up is off the ground and running, U.S. offer letters and confidentiality agreements have been signed and compliance policies have been implemented. It’s now time to hire your first employee outside the U. S. This seemingly easy task is often easier said than done. For many emerging companies, the road to a global workforce is paved with potholes. How can you prepare for the Friday afternoon call from a frantic HR manager who wants to hire a salesperson who will go to a competitor if he doesn’t have an offer in his hands by Monday morning? Can you afford to lose the candidate, and all the great opportunity that the candidate represents to the business? How do you respond when asked about a sales representative who received an offer three months ago and has since then been working in Brazil, while being paid directly from the U.S.? These issues are part of running an international business, however, with the right preparation and planning, these speed bumps can be leveled before they escalate.
The five issues Ute discusses for growing employers to consider before going global are:
- Doing Business and Tax Considerations, Including Corporate Structure
- Will you Expand by Hiring Employees, Independent Contractors, Third Party Agencies or Expatriate Employees?
- Payroll & Benefits Processes and Costs, Including Witholding on Taxes and Social Charges (similar to Social Security)
- Employment Agreements & Policies
- Managing the Exit Strategy – Probationary Periods, Lack of At-Will Employment, Notice Periods and Severance
Article prepared by and republished courtesy of our colleagues Mary Langowski, Rebecca Jones McKnight, Kristen Ratcliff and So-Eun Lee; originally published here: http://www.dlapiper.com/offering-health-care-solutions-at-consumers-fingertips-what-you-should-know-about-fda-regulation-of-mobile-medical-apps/.
Over two years after the Food and Drug Administration issued draft guidance on “mobile medical applications,” the agency recently issued its greatly anticipated final guidance. As FDA considered comments from stakeholders during this prolonged review period, many in the industry continued to struggle with understanding the boundaries proposed by FDA and their potential impact on businesses across the health care sector.
The principles outlined in the final guidance remain consistent with those described in the draft guidance. FDA has stated that it is “not expanding [FDA’s] universe” by regulating mobile medical applications (i.e., apps), but rather applying longstanding basic tenets of medical device regulation and–at the core – requirements of the Food, Drug and Cosmetic Act (FDCA). These principles may, however, be unfamiliar to many in the technology space, particularly those who have not previously been involved with FDA-regulated devices.
In response to industry requests for clarity, FDA added a number of specific examples in the final guidance, including examples of mobile apps that would not be considered regulated devices; and those that would technically be considered devices, but to which FDA would apply enforcement discretion.
Below we provide an overview of FDA’s final guidance, including a high-level look at FDA’s intended regulatory approach. Continue Reading
Article prepared by and republished courtesy of our colleagues Evan M. Migdail and Steven R. Phillips; originally published here: http://www.dlapiper.com/shutdown-likely-to-drag-on-as-issues-grow-more-complicated/.
The federal government shutdown, now in its fourth day, appears likely to continue a while longer as the list of issues under discussion between the President and Congressional leaders, and within the Congress, becomes longer and more complex.
Congress faced two major fiscal deadlines as October approached: the expiration of funding for most government operations on October 1, and the October 17 deadline reported by Treasury Secretary Jack Lew at which the United States is at risk of defaulting on its obligations absent the authority to borrow above the current debt limit of US$16.7 trillion. While discussions in late September focused on the spending deadline, the proximity of the October 17 deadline has forced a practical merger of the two issues. A resolution of the spending shutdown appears virtually unachievable without a formula on the debt issue as well. Continue Reading
The SEC is currently open and operational despite the recent federal government shutdown. So far the federal government shutdown has not slowed the proposed Twitter IPO, as their Form S-1 registration statement was posted to the SEC website on October 3.
The SEC has released its operational plan in the event of a future SEC shutdown, which can be found here. If there is a lapse in appropriations resulting in an SEC shutdown, the SEC will continue only certain functions, which are discussed both in the SEC release referenced above and detailed by my colleagues here. Any changes in the SEC’s operational status will be announced on the SEC website.
Trent Dykes, Megan Muir and Kiran Lingam (guest contributor from SeedInvest)
I. Introduction / Background
With the passage of the JOBS Act, the regulation governing most private securities offerings is undergoing a dramatic makeover. Congress tasked the Securities and Exchange Commission (SEC) with developing new rules allowing companies to generally solicit funds, subject to restrictions as determined by the SEC. In July 2013, the SEC issued final rules on this topic and also proposed additional rules that are not yet final. Managers of incubators, accelerators, angel groups and others involved in startup capital raising have expressed great concern about how the revised regulations will affect them, particularly with respect to their public-facing events.
Whether presenting at a demo day event, angel group meetings or business plan competitions constitutes “general solicitation” is a question that has caused great concern among many angel groups, incubators and other event organizers around the country. This post is designed to provide practical tips to event organizers on how to structure their demo day, pitch event or angel group meeting event in light of new federal rules and the current regulatory landscape.
Starting today, September 23, 2013, the final rules published by the SEC in July go into effect and companies can use general solicitation (or advertising) in connection their securities offerings under the new Rule 506(c) of Regulation D of the Securities Act of 1933, adopted under Title II of the JOBS Act. However, the companies that choose to take advantage of general solicitation under the new rules will have to take steps they did not need to take in the past, including additional verification of accredited investor status. If the proposed rules go into effect, there are a further steps that would be imposed on companies choosing to generally solicit, including making advance filings of a Form D, filing with SEC the materials used in the general solicitation and including specific language (referred to as “legends”) in written solicitation materials. Continue Reading
Earlier this summer, together with some of my partners within DLA Piper (Christopher Paci, Jason Harmon, Darryl Steinhause and Wesley Nissen), I wrote an article about new SEC regulations concerning private offerings. The final rules issued in July 2013 by the SEC go into effect on September 23, 2013. Below is a summary of the changes with respect to the disqualification of certain “bad actors” in connection with private offerings. Also, attached is a sample Rule 506 Covered Person Questionnaire seeking information about potentially disqualified individuals and entities. The full article also contains a discussion of new rules allowing general solicitation in certain private fundraising as well as a discussion of certain proposed private offering rule changes that are not yet final. That piece may be found here.
The Dodd-Frank Act, enacted in 2010, required the SEC to adopt rules to prohibit use of the Rule 506 exemptions under Regulation D for securities offerings in which certain “bad actors” are involved, whether or not general solicitation or general advertising are used in the offering. Rule 506 is the exemption from registration requirements used in many private offerings, including most startup financings. To fulfill this Dodd-Frank requirement, the SEC has adopted rules that disqualify an issuer from selling securities in reliance upon the Rule 506 exemption if the issuer, its board members, certain of its officers and its large shareholders, among others covered by the rule, have experienced a “disqualifying event.” This is similar to existing bad actor rules, such as those found in Rule 505 of Regulation D, which relies on the disqualification provisions set forth in Rule 262 of Regulation A.
Disqualifying events include criminal convictions in connection with sales of securities, certain SEC civil and administrative actions and certain other orders from financial service industry regulatory authorities. If the issuer or other covered person is deemed a bad actor under this rule, the Rule 506 exemption will not be available to the issuer.