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californiacorporate&securities 9/23/2016
SEC Overlooks Nevada’s Transfer Agent Licensing Laws

Transfer agents provide a number of crucial services, primarily for publicly traded companies.  Among other responsibilities, they maintain ownership records, record security transfers, issue and cancel certificates and distribute dividends.  Since 1975, persons performing transfer agent services for public companies must be licensed by the “appropriate regulatory authority” (“ARA”) pursuant to Section 17A(c) of the

The post SEC Overlooks Nevada’s Transfer Agent Licensing Laws appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 9/22/2016
Does California Corporate Law Really Govern 20% of All Public Companies?

On Tuesday, the Deal Professor (aka Berkeley Law School Professor Steven Davidoff Solomon) wrote an interesting column for The New York Times’ Dealb%k.  According to the Professor, California is the headquarters state for 20% of all companies with securities listed on the New York and Nasdaq stock exchanges.  He finds this number particularly impressive in light

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californiacorporate&securities 9/21/2016
Can Limited Partnerships Have Officers?

Can limited partnerships have officers?  In many cases, individuals with officer titles will actually be officers of the general partner.  My question is whether a limited partnership itself may have officers. Two provisions of Delaware’s Revised Uniform Limited Partnership Act contemplates that the answer is “yes”.  Section 17-403(c) provides: Unless otherwise provided in the partnership agreement,

The post Can Limited Partnerships Have Officers? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 9/20/2016
What The Public Utilities Code, Toilets And A Porphyrogenetus Emperor Have In Common

Mobile West LLC v. City & County of San Francisco, 2016 Cal. App. LEXIS 769 (1st Dist. Sept. 15, 2016) is not the kind of case that I typically write about in this blog.  After all, it has nothing to do with corporate, securities or limited liability company law.  Nonetheless, I found the case intriguing

The post What The Public Utilities Code, Toilets And A Porphyrogenetus Emperor Have In Common appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 9/19/2016
Should Tweener Corporations Include This Provision In Their Equity Compensation Plans?

I have previously commented on the phenomenon of what I call the “tweener” corporation.  See Will The Rise Of Tweener Corporations Increase Focus On California’s Annual Report Statute?  These are corporations that are not quite private and not quite publicly traded.  One of the advantages of not being subject to the reporting requirements of the Securities

The post Should Tweener Corporations Include This Provision In Their Equity Compensation Plans? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 9/16/2016
Court Rules Coequal Stockholders Owe Fiduciary Duties To Each Other

Stockholders in closely held corporations often operate their companies as if they were partnerships.  Does that mean that the stockholders, like partners, owe fiduciary duties to each other? In Jones v. H. F. Ahmanson & Co., 1 Cal. 3d 93 (1969), the California Supreme Court famously held: Majority shareholders may not use their power to

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californiacorporate&securities 9/15/2016
Was This “Whiz Kid” An Investment Adviser?

Earlier this week, the Securities and Exchange Commission announced that a self-styled “stock trading whiz kid” and his Los Angeles, California company have agreed to pay $1.5 million to settle a complaint for violations of Rule 10b-5.  There is an odd disconnect between the SEC’s press release and its complaint.  The press release is headlined “stock newsletter fraud” and repeatedly refers to the

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californiacorporate&securities 9/14/2016
NASAA Releases 2015 Enforcement Report

State securities regulators serve an important local enforcement function.  In fact, state securities regulation precedes federal regulation by more than two decades.  The North American Securities Administrators Association is an association of state, provincial and territorial securities regulators from the 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico, Canada, and Mexico.

The post NASAA Releases 2015 Enforcement Report appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 9/13/2016
Ninth Circuit Holds Attorney’s Statement Was “Made”, Not Attributed

Readers familiar with the Nicene Creed will instantly recognize the phrase “begotten, not made”.  I won’t wade into the theological meaning of this phrase, but I cite it as an example of the importance that can be attached to the seemingly simple concept of making.  Under Rule 10b-5, it is unlawful for “any person, directly or indirectly, .

The post Ninth Circuit Holds Attorney’s Statement Was “Made”, Not Attributed appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 9/12/2016
The Charging Order – How The Nevada Secretary Of State Doesn’t Get It Quite Right

In 2007, Nevada imposed an interesting limitation, the charging order, on the ability of creditors to foreclose on shares of closely-held Nevada corporations.  Here’s how the Nevada Secretary of State’s website describes the statute, NRS 78.746: Charging order protection for stock of closely-held corporations protects stockholders of all Nevada corporations with between 2 and 75

The post The Charging Order – How The Nevada Secretary Of State Doesn’t Get It Quite Right appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 9/9/2016
Nevada’s Secretary of State Concatenates Veil Piercing, Indemnification And Exculpation

The Nevada Secretary of State’s website unabashedly proclaims “Nevada is the second most popular commercial filing jurisdiction in the country, due largely to our favorable business laws and low-tax environment.”  The website then continues with a list of “legal advantages”, including the following: Piercing the corporate veil in Nevada requires the presence of “fraud” or

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californiacorporate&securities 9/8/2016
The Tax Man Cometh To Nevada Businesses

Nevada likes to market itself as a low tax jurisdiction, touting the fact that “Nevada does not impose income tax on domestic or foreign corporations.”  It may not impose a tax on income, but it does impose a tax on “commerce”.  This new tax is imposed on businesses with a “Nevada gross revenue” exceeding $4 million in the taxable year.  A

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californiacorporate&securities 9/7/2016
Court Rules Board Of Directors Is Incapable Of Being Sued

Plaintiffs sue corporations and they sue individual members of the boards of directors, but can a plaintiff sue a board of directors as a body? That was the question in Theta Chi Fraternity, Inc. v. Leland Stanford Junior Univ., 2016 U.S. Dist. LEXIS 116863 (N.D. Cal. Aug. 30, 2016).  The case itself involved a national fraternity’s

The post Court Rules Board Of Directors Is Incapable Of Being Sued appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 9/6/2016
Is This The SEC Or The Lotto?

Last week, the Securities and Exchange Commission trumpeted that whistleblower awards have now exceeded $100 million, or a million Benjamins! “Chance, the loss or gain of a moment” The SEC’s total payout is impressive, but the number of payees is extremely small.  According to the SEC, awards were paid to only 33 persons. Moreover, 83% of the

The post Is This The SEC Or The Lotto? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 9/2/2016
One More Thing That A Limited Liability Company May Not Be Able To Do

California law does not permit limited liability companies to render a variety of professional services.  See,  Contractors Do It, PIs Do It; Why Not Real Estate Brokers?  To add insult to injury, the California General Corporation Law does not explicitly authorize LLCs to act as incorporators, even while permitting a wide variety of natural and unnatural persons to

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californiacorporate&securities 9/1/2016
Shareholder Derivative Action Or Shareholder Derivative Suit?

A legal proceeding brought in a representative capacity is sometimes referred to as a “shareholder’s derivative action” and sometimes as a “shareholder’s derivative suit”.  Which is correct? It turns out that the General Corporation Law doesn’t use the term “derivative”.  Section 800 of the Corporations Code refers to an action “instituted or maintained in right

The post Shareholder Derivative Action Or Shareholder Derivative Suit? appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/31/2016
Why You May Want To Reconsider Promising Confidentiality To Whistleblowers

In this recent post, I suggested that absolute guarantees of confidentiality to whistleblowers may be counterproductive. In today’s post, I will elaborate on why. The scope of the promise may be unclear.  Often, the promise of confidentiality is as succinct as “All reports and disclosures you make under this Code of Ethics will remain confidential

The post Why You May Want To Reconsider Promising Confidentiality To Whistleblowers appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/30/2016
Nevada Corporations And Virtual Stockholder Meetings

Companies typically cite cost savings and ease of access as the motivation for holding virtual stockholder meetings.  Andy D. Bryant, Chairman of the Board of Intel Corporation, for example, provided the following rationale in the company’s 2016 proxy materials: Intel has for years been a leader in the use of technology to improve and broaden

The post Nevada Corporations And Virtual Stockholder Meetings appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/29/2016
Agreement To Arbitrate “Any Disputes” Doesn’t Reach Derivative Claims

Corn v. Superior Court, 2016 Cal. App. Unpub. LEXIS 6182 (Cal. App. 2d Dist. Aug. 22, 2016) is a case about the meaning of one sentence in a settlement agreement consisting of just seven words – “The Parties agree to arbitrate any disputes”.  The precise question was whether these seven words barred the petitioner from instituting a derivative action.  The

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californiacorporate&securities 8/26/2016
Three Considerations For Drafting A Code of Business Conduct

Although the Securities and Exchange Commission does not require that a company adopt a code of business conduct and ethics, I would be very surprised to hear of an SEC reporting company that has not adopted such a code.  Item 406 of Regulation S-K requires a reporting company to disclose whether it has “adopted a code of ethics

The post Three Considerations For Drafting A Code of Business Conduct appeared first on CALIFORNIA CORPORATE & SECURITIES LAW.

 
californiacorporate&securities 8/24/2016
Chevron Deference In California

In mid July, the House of Representatives passed the Separation of Powers Restoration Act of 2016, H.R. 4768 (SOPRA).  If enacted, the SOPRA would amend the federal Administrative Procedure Act to require a reviewing court to decide “de novo all relevant questions of law, including the interpretation of constitutional and  statutory provisions, and rules made by agencies”.   The

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californiacorporate&securities 8/23/2016
What, If Anything, Impedes The SEC’s Whistleblower Rule?

As I suspected, law firms are churning out memoranda on the SEC’s recent enforcement actions involving alleged impediments to whistleblowers. While accurately, summarizing these actions, I’m not sure that some of the authors have adequately captured the breadth of the rule and the SEC’s even broader reading of the rule. First, the rule itself: (a)

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californiacorporate&securities 8/22/2016
Who Signs The Bylaws?

I am occasionally asked who should sign the bylaws.  The question presumes that bylaws must be signed.  Although the California General Corporation Law requires that the original or a copy of the bylaws be available to shareholders (Section 213), it does not require that corporate bylaws be signed.  Indeed, it could be argued that the

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californiacorporate&securities 8/19/2016
Ouch! Proxy Statement Argues That Resolving Dispute In California Court Was “Costly And Time Consuming”

As Ralph Waldo Emerson once famously told Oliver Wendell Holmes, Jr.: ““Holmes, when you strike at a king, you must kill him.”  For the full story, see The Corporations Code Can Make Suing Your Former Employees Costly.  I was reminded of this advice when reading the following in the proxy statement of a California-based company in favor

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californiacorporate&securities 8/18/2016
How Much Is A Whistleblower Waiver Really Worth?

The Securities and Exchange Commission is aggressively interpreting and enforcing its rule against impeding whistleblowers.  Rule 21F-17(a) provides: No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement (other than agreements dealing with

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