Batts, Ed_Headshot.jpgCONTRIBUTED BY
Ed Batts
ed.batts@dlapiper.com

Proposed amendments to the Delaware General Corporations Law (DGCL) for 2014 aim to significantly streamline routine questions that often prove vexing for emerging growth companies and newly formed subsidiaries of larger companies.

It is a fact of life that people leave jobs.  They move to other cities, whether for family or lifestyle.  They quit for perceived greener pastures.  They retire.  Or they are hit by the proverbial bus.  Forming a company under Delaware law historically has had a pitfall:  a “sole incorporator” (often a paralegal) forms the initial company, one assumes promptly appoints one or more directors and then, one further assumes, immediately resigns.

But sometimes that paperwork is lost, overlooked (particularly if creating a new subsidiary for a larger company) or forgotten in the midst of workloads, or a company founder without the benefit of legal counsel did the incorporation and neglected to resign.  An existential crisis involving numerous lawyers scratching their heads can ensue if the resignation paperwork does not exist and the original sole incorporator cannot be located or refuses to cooperate.
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Article prepared by and republished courtesy of our colleague Ed Batts; originally published here: http://www.dlapiper.com/en/us/insights/publications/2014/04/muddy-employee-incentive-issues/.

In mediocre payout situations, transaction proceeds are unlikely to give a substantial (if any) return to common stockholders, yet may be sufficient to at least return the initial investment, and perhaps a liquidation premium, to preferred stockholders. In such a scenario, the practical implementation of fiduciary duties for privately held boards has historically been somewhat murky.

Prior to 2013, many issues generally surrounded liquidation payouts to preferred investors when allocated among various series of preferred investments, whether structured as bridge notes that attached large additional preferences, or as a pay-to-play, which immediately diluted non-participating legacy stockholders at the time of a bridge financing.
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CONTRIBUTED BY
Ed Batts

At a recent American Bar Association meeting, a senior Securities and Exchange Commission official reviewed various aspects of interest for public company reporting and compliance purposes. As is customary, such Staff comments were on a non-attribution basis and were represented to be personal views only and not those of the SEC as a whole. Nonetheless, such informal commentary continues to offer contextual perspective on both current matters and, equally important, indicates areas of less current significance at the SEC.


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