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Corporate Matters – The Value of Par Value

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Corporate Matters – The Value of Par Value

Winston Churchill is known to have said that the U.S. and the U.K. are separated by a common language. The gap is much wider with the rest of Europe as tax and business terminology may be similar, but the gap in understanding is wider. One area of the law where the chasm remains wide relates to everyday corporate terms, such as par and par value for stock. Not an important term in the U.S., the concept of “par value” in Europe is extremely important, especially if the shareholders in the U.S. want dividends and the managing director in Europe desperately keeps away from any transaction that could give rise to liability if dividend distributions are found to impair capital. Simon Prisk comments on the accepted meaning of the term in the U.S. and the surprise response he encounters when advising European clients.

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Corporate Matters: F.I.R.R.M.A. Proposed Regulations Expand C.F.I.U.S. Oversite on Foreign Investment

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Corporate Matters: F.I.R.R.M.A. Proposed Regulations Expand C.F.I.U.S. Oversite on Foreign Investment

C.F.I.U.S. is an interagency committee authorized to review certain transactions involving foreign investment in the U.S. Its mandate is to determine the effect of such transactions on the national security of the U.S. and, where appropriate, to deny approval to the transaction. F.I.R.R.M.A. was enacted in 2018 to expand the scope of transactions that are subject to C.F.I.U.S. review. Recently, the Treasury Department proposed regulations to implement the changes under F.I.R.R.M.A. Simon H. Prisk discusses the way in which the jurisdiction of C.F.I.U.S. has been expanded.

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Corporate Matters: Delaware Law Allows L.L.C. Divisions

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Corporate Matters: Delaware Law Allows L.L.C. Divisions

Delaware recently amended its company law to enable a limited liability company (“L.L.C.”) to be divided into two or more newly-formed L.L.C.’s, with the original company either continuing or terminating its existence.  The amendment provides L.L.C. members with significant flexibility in separating from each other so that assets, liabilities, rights, and duties of the company can be allocated among the resulting companies.  Simon Prisk explains the change in company law.

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Corporate Matters: Ichabod Crane Visits His Executive Employment Attorney

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Corporate Matters: Ichabod Crane Visits His Executive Employment Attorney

Washington Irving’s “The Legend of Sleepy Hollow” tells the story of poor Ichabod Crane, a school teacher attacked by a headless horseman. It is a tale fitting for Halloween by a 19th Century American author famous for his stories about rural New York State, somewhere near the Tappan Zee Bridge. In this latest retelling, George Birnbaum, a New York State attorney whose practice focuses on labor law, brings a new twist to the story. Here, it comes to light that Ichabod made poor decisions regarding his employment contract, and those decisions exacerbated work-related problems flowing from the attack.

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Corporate Matters: Profits Interest Basics

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Corporate Matters: Profits Interest Basics

In the latest in his series of articles on the relative flexibility of limited liability companies and their desirability for use in many instances, including joint ventures, Simon H. Prisk looks at grants of profits interests as a means of compensating service providers and employees.  If done properly, these incentives can be optimized by favorable tax treatment, achieving the same or better tax results than incentive stock options available to C-corporations and S-corporations.  If done without proper thought and planning, the results may be suboptimal.  

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Corporate Matters: Partner Representative and the New Partnership Audit Regime

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Corporate Matters: Partner Representative and the New Partnership Audit Regime

Commencing in January 2018, the I.R.S. began a new centralized audit regime with respect to partnerships.  It replaces the concept of a “Tax Matters Partner” with a “Partnership Representative.”  This is more than a change in name.  Unless the partnership is able to elect out of the new rules and actually does so, the I.R.S. will only deal with the Partnership Representative, and the individual partners have no right to separately appeal any tax assessment.  Additionally, the I.R.S. may now collect tax at the partnership level as a result of a tax audit.  Simon Prisk examines these and other changes – including the opt-out provisions – that will affect partnerships, partners in the current taxable year, and partners at the time that year is examined by the I.R.S.

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Tax Roulette: Buying a Business Jet in 2017 – Why Following the Patriot’s Example May Lead to a Jackpot

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Tax Roulette: Buying a Business Jet in 2017 – Why Following the Patriot’s Example May Lead to a Jackpot

The New England Patriots recently made headlines with the purchase of two private team jets.  Was this plan implemented only to provide more space for beefy footballers, or did ownership identify the nifty situation that could lead to a jackpot of tax savings for high-ticket assets purchased in 2017?  Beate Erwin and Stanley C. Ruchelman explain that with increased depreciation deductions this year at high tax rates and possible recapture in a future year at low tax rates, the odds are good.

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Corporate Matters:  Five Steps for Leveraging your Start-Up’s Emerging Intellectual Property

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Corporate Matters:  Five Steps for Leveraging your Start-Up’s Emerging Intellectual Property

For an emerging business, intellectual property (“I.P.”) can be the business’s most important asset and the difference between its success and failure.  That is why steps must be taken early on to protect those “jewels.”  Barry Lewin of Gottlieb, Rackman & Reisman, P.C. in New York explains five important actions designed to protect and enhance value.

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Corporate Matters: Joint Venture Considerations

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The term “joint venture” is more a term of art than a legal concept.  Joint ventures have been described by the courts as an association of two or more persons, in the nature of a partnership, to carry on a business enterprise for profit.  Simon H. Prisk examines the decision points faced when drafting a joint venture agreement. 

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Corporate Matters: Should a Liquidated Damages Clause be Included in a Contract?

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Corporate Matters: Should a Liquidated Damages Clause be Included in a Contract?

A liquidated damage clause in a contract is an attempt by the parties to estimate damages in the event of non-performance or breach of the contract.  It represents a way to compensate the aggrieved party for an act of the other party to the agreement.  To be enforceable, the amount of the liquidated damages must not be a penalty.  Simon H. Prisk explains when these clauses should be used, whether a clause may have a problem regarding its enforcement, and what standards are used for making that determination.

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Corporate Matters: Domestication of Non-U.S. Entities

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Although not allowed under New York law, a non-U.S. entity may transfer its corporate charter from a foreign jurisdiction to the state of Delaware and many other states.  The process allows a non-U.S. entity to become subject to all of the provisions of state corporate law, and the existence of the corporation is deemed to have commenced on the date the non-U.S. entity was first formed.  When the process is completed, the corporation is legally formed under U.S. state law.  Simon Prisk explains.

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Corporate Matters: Initial Steps in Selling a Privately Held Corporation

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Disclosure of information is a problem often encountered when representing the owners of a privately held business that is for sale.  What should be disclosed?  What should remain confidential?  How is confidential information protected?  These and other matters will arise in connection with the sale of a business.  Owners often hate disclosure, while prospective purchasers demand as much as possible, and delegate the task to officious lawyers and accountants.

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Corporate Matters: Earnouts

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What is an earnout?  When is it used?  How long a term should be considered when computing an earnout?  Simon H. Prisk explores the ins and outs of this useful corporate acquisition tactic that makes a portion of the purchase price contingent on a target company achieving certain milestones.

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Corporate Matters: Anatomy of a Limited Liability Company Agreement – Part I

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Simon H. Prisk and Nina Krauthamer begin a series on the reasons why a carefully crafted L.L.C. agreement is important in a joint venture.  Commonly referred to as an operating agreement, this governance tool addresses the purpose, management, and overall operation of an L.L.C. and the obligations of members to make capital contributions.

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Corporate Matters: If I Can Make it There, I Can Make It...

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We have recently been receiving instructions from a variety of European clients looking to open either an office or retail location in New York. These clients are looking for advice across a range of topics: from location and leases to signage and insurance. In this month’s “Corporate Matters,” Simon H. Prisk addresses typical start-up legal needs of foreign clients expanding retail business to the U.S.

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Corporate Matters: Directors and Officers Insurance

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Many of our clients instruct us from outside the United States to establish companies through which an acquisition or some other transaction will be conducted. After completing our “know your client” obligations for a matter involving a new client, the home country advisors instruct us to form the entity and open a bank account. This month, Simon Prisk looks at directors and officers insurance policies designed to protect incumbents from liability claims based on a failure to supervise the actions of a company. He cautions management to be wary of coverage gaps when comparing policies and costs.

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Corporate Matters: Are You Doing Business in New York?

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Clients with entities formed in a state other than New York often ask if they should seek authority to transact business in New York. Typically, the client is concerned that operations in New York exist and a fear that often inhibits a company from pursuing registration is the expectation that registration brings with it New York State and New York City tax obligations. Simon H. Prisk reflects: The answer to these questions is not as clear cut as one might think.

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Corporate Matters: Buy/Sell Arrangements

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In our May issue, we discussed the implications and importance of drafting governance documents to cover the death of a business partner. We thought an appropriate follow-up would be a brief examination of buy/sell provisions.

Buy/Sell provisions deal with the transfer of ownership interests, typically within a business enterprise, when one of the partners wants out, or, potentially, wants another partner out. In either circumstance, it is not uncommon for each partner to want to carry on with the business – just as long as the other partner is excluded.

Corporate Matters: One Clause that Should Be in Every Partnership Agreement

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Our practice involves the drafting of many different types of partnership agreements and other agreements governing the relationship among individuals involved in a common enterprise. These agreements include general and limited partnership agreements, operating agreements or limited liability company agreements, and shareholder agreements for corporations. In this article, all these types of entities are referred to as “joint ventures.”

During the initial client discussions with respect to these agreements we highlight and discuss the usual laundry list of matters that co-investors should consider at the time of formation. One matter that we believe should be addressed in every joint venture agreement is what happens upon the death of a member of the joint venture. For obvious reasons, many do not want to focus on this point. However, the procedure to be followed when surviving spouses and heirs inherit an ownership interest is best handled at the beginning of the joint venture. While it may appear that all joint venture members have similar interests, relationships can change very quickly, and the bottom line is that while one may be very interested in being in partnership with a certain individual, the same interest may not attach to that person’s spouse.

Corporate Matters: Help – My Delaware Entity Has Been Cancelled!

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We have received inquiries recently concerning Delaware entities that have been cancelled by the State. This situation is not as bad as it sounds, and after a few simple steps (and a couple of checks), the entity can be reinstated.

How Does it Happen?

In Delaware, a corporation becomes “void” for failure to file its annual report. The entity becomes “forfeited” if its registered agent resigns and is not replaced. Registered agents typically resign if their annual fee is not paid in a timely manner. The registered agent is required to give 30 days’ notice of its intention to resign and will have forwarded to the address of record delinquency notices from the State with respect to unfiled reports.

The certificate of formation of a Delaware limited liability company will be cancelled if the entity fails to pay its annual franchise tax for three consecutive years, or if it fails to replace its registered agent within 30 days.

Before a Delaware corporation becomes void or forfeited or a limited liability company has its certificate of formation cancelled, such entity first ceases to be in “good standing.” This occurs as soon as an entity fails to pay certain fees or to file annual reports. While in this status, an entity cannot make any filings with the State or sue in the courts of Delaware. It is also difficult to close any transaction where a good standing certificate is required. This situation may be cured by filing the outstanding reports and paying all outstanding franchise taxes.