Source: https://calawyers.org/business-law/selected-developments-in-business-law-courtesy-of-ceb-financing-and-protecting-california-businesses/
Timestamp: 2019-07-19 05:59:24
Document Index: 361153686

Matched Legal Cases: ['§4', '§4', '§240', '§404', '§7262', '§229', '§17', '§8', '§13', '§1235', '§3', '§16', '§18', '§18']

Selected Developments In Business Law Courtesy of CEB — Financing and Protecting California Businesses – California Lawyers Association
Selected Developments In Business Law Courtesy of CEB — Financing and Protecting California Businesses
Courtesy of CEB, we are bringing you selected legal developments in areas of California business law that are covered by CEB’s publications. This month’s feature is from the February 2019 update to Financing and Protecting California Businesses. References are to the book’s section numbers. See CEB’s BLS Landing Page for special discounts for Business Law Section members. The most significant legal developments since the last update include developments in such important topic areas as start-up financing, going public, securities law, lending transactions, insurance, cybersecurity, and tax law.
Simple Agreements for Future Equity (SAFEs) are a recent development in start-up financing, pioneered by Y Combinator, a Silicon Valley venture capital firm specializing in seed financing. See https://www.ycombinator.com/documents/#about. SAFEs are intended as an alternative to convertible debt (see §4.25), but are not debt instruments. Under a SAFE, an investor makes a cash investment in a start-up but does not receive stock in the company until the occurrence of an event specified in the agreement. The amount of stock that the investor will be entitled to receive is not fixed at the time the SAFE is executed, but rather is subject to a negotiated valuation cap specified in the SAFE. Typically, the SAFE terminates automatically and the investor receives preferred stock when the company offers preferred stock to other investors in a so-called priced round. Other events that will terminate the SAFE and trigger issuance of stock to the investor typically include change-of-control transactions, IPOs, or dissolution of the company. Because SAFEs are not debt instruments, they are not senior to the founders’ equity and no interest accrues on them. See §§4.25A, 17.3.
In June 2018, the SEC revised the definition of “smaller reporting company” to include companies with a public float of greater than $75 million but less than $250 million. This amendment increased the number of companies that benefit from the scaled disclosure accommodations available to SRCs. The amendment did not, however, change the threshold to qualify as an “accelerated filer” as defined in Exchange Act Rule 12b–2 (17 CFR §240.12b–2). Consequently, a company with $75 million or more of public float that qualifies as a smaller reporting company will be subject to the requirements that apply to an “accelerated filer” as long as its public float is greater than $75 million, including the accelerated deadlines for filing periodic reports and the requirements that it provide the auditor’s attestation of management’s assessment of the effectiveness of internal controls over financial reporting required by §404(b) of the Sarbanes-Oxley Act (15 USC §7262), its Internet address and disclosure regarding the availability of its filings required by Items 101(e)(3) and (4) of Regulation S-K (17 CFR §§229.101(e)(3) and (4)), and the disclosure required by Item 1B of Form 10-K about unresolved staff comments on its periodic or current reports. On August 10, 2018, the SEC published a helpful guide for smaller reporting companies, titled A Small Entity Compliance Guide for Issuers, available at here. See §17.14.
For a comprehensive chart of the California usury law exemptions, see §8.89.
Ransomware is a type of malicious software that infects and locks down access to a computer to deny the owner’s use until a ransom is paid. Ransomware typically infects the host computer through phishing e-mails and exploits unpatched security vulnerabilities in software. See here. In 2017, Microsoft estimated that the “Wanna Cry” ransomware variant was found in over 150 countries and infected over 300,000 computers across 100,000 businesses in multiple industries including retail, manufacturing, transportation, healthcare, and finance. See here. See §13.1.
If a patent holder exercises control over a transferee corporation with the result that there is no effective transfer of all substantial rights in the patent, the requirements of IRC §1235 are not met, even if the documents describing the transfer formally assign all substantial rights. “The key inquiry remains whether, as a practical matter, the transferor shifted all substantial rights to the recipient.” Cooper v Comm’r (9th Cir 2017) 877 F3d 1086, 1092 (taxpayer did not transfer all substantial rights to patents to corporation because taxpayer retained right to retrieve ownership of patent at will). See §3.8.
On June 21, 2018, the United States Supreme Court issued its decision in South Dakota v Wayfair, Inc. (2018) 585 US ___, 138 S Ct 2080. Under Wayfair, a retailer may have a substantial nexus with California without having a physical presence in the state. Beginning April 1, 2019, retailers located outside of California are required to register with the California Department of Tax and Fee Administration (CDTFA), collect the California use tax, and pay the tax to the CDTFA based on the amount of their sales into California, even if they do not have a physical presence in the state. The new collection requirement applies to a retailer if during the preceding or current calendar year:
The new collection requirement will apply to taxable sales of tangible personal property to California consumers on and after April 1, 2019, and is not retroactive. Retailers reaching either of the above sales thresholds are now required to register with the CDTFA to collect the California use tax even if they were not previously required to register. These retailers include retailers that sell tangible goods for delivery into California through the Internet, mail-order catalogs, telephone, or any other means. See §16.35.
Spotify Technology S.A. went public on April 3, 2018, through a “direct listing” of its shares on the New York Stock Exchange. A direct listing is a newly developed structure that provides certain companies with an alternative to a traditional IPO for going public. In a direct listing, a company’s outstanding shares are listed on a stock exchange without either a primary or secondary underwritten offering. Existing shareholders, such as employees and early-stage investors, become free to sell their shares immediately on the stock exchange. Because a direct listing does not require participation of an underwriter, certain features of a traditional IPO—such as lock-up agreements and price stabilization activities—are not present in a direct listing. The success of Spotify’s direct listing was due in part to the following factors: (1) Spotify was a well-capitalized company with no need to raise additional capital; (2) it had a large and diverse shareholder base that could provide sufficient supply-side liquidity on the first day of trading; (3) it had a well-recognized brand name and an easily understood business model; and (4) its founders, directors, and management were comfortable having no involvement in establishing the initial “price to public” of Spotify’s shares. A direct listing may not be appropriate for a company that does not share these characteristics. See §18.5A.
See the ISS United States Proxy Voting Guidelines at https://www.issgovernance.com/file/policy/active/americas/US-Voting-Guidelines.pdf at 9. Glass, Lewis & Co. (Glass Lewis) has similar voting guidelines. See the 2018 U.S. proxy voting guidelines of Glass Lewis at here. See §18.42.