For readers of this blog dying to learn more about yours truly, I was profiled on the Texas Bar's Blog here:
http://blog.texasbar.com/2010/09/articles/people/random-profile-douglas-clayton-southlake/#more
Special thanks to Joanna Herzik of the Texas Bar for graciously inviting me to participate.
Wednesday, September 29, 2010
Friday, September 24, 2010
What is a Corporate Lawyer?
What is a corporate lawyer?
I am often asked something like: "What area of law do you practice in?" When I answer "Corporate and Securities law," I am often met with blank stares or other responses that indicate that the other person has only a vague notion of what folks in my area of the law do.
Some people think "corporate law" means you only work for big corporations, which is sometimes, but hardly always, the case. Others use the term "corporate lawyer" to refer to any lawyer who represents companies who they imagine are determined to pollute the environment, distribute unsafe products, crush labor unions and torture puppies. Some must imagine that we all look just like the team of gray-suited attorneys engaged by The Simpsons' Montgomery Burns to intimidate and crush the innocent citizens of Springfield.
The truth is that Corporate and Securities lawyers are much less evil than one might think. We assist clients with the formation of companies, the merger and acquisition of companies, and the financing of companies. As far as I know, no client of mine has ever tortured puppies.
In 1997, when I was a law student trying to decide what area of law to pursue, I asked a corporate and securities attorney to explain what he did. He said, "We assist clients with buying and selling companies and with public and private offerings of debt and equity securities." Of course, we do other things too, but I thought that explanation artfully captured the essence of what we do.
I am often asked something like: "What area of law do you practice in?" When I answer "Corporate and Securities law," I am often met with blank stares or other responses that indicate that the other person has only a vague notion of what folks in my area of the law do.
Some people think "corporate law" means you only work for big corporations, which is sometimes, but hardly always, the case. Others use the term "corporate lawyer" to refer to any lawyer who represents companies who they imagine are determined to pollute the environment, distribute unsafe products, crush labor unions and torture puppies. Some must imagine that we all look just like the team of gray-suited attorneys engaged by The Simpsons' Montgomery Burns to intimidate and crush the innocent citizens of Springfield.
The truth is that Corporate and Securities lawyers are much less evil than one might think. We assist clients with the formation of companies, the merger and acquisition of companies, and the financing of companies. As far as I know, no client of mine has ever tortured puppies.
In 1997, when I was a law student trying to decide what area of law to pursue, I asked a corporate and securities attorney to explain what he did. He said, "We assist clients with buying and selling companies and with public and private offerings of debt and equity securities." Of course, we do other things too, but I thought that explanation artfully captured the essence of what we do.
Tuesday, September 21, 2010
Dodd-Frank Act provides SOX Section 404(b) Relief for Non-Accelerated Filers
One pro-small business feature of the Dodd-Frank Act is SEC. 989G. (EXEMPTION FOR NONACCELERATED FILERS). That Section exempts so-called "non-accelerated filers" (publicly traded companies with a market capitalization of less than $75 million) from the onerous provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002. Section 404(b) of SOX would otherwise require such smaller public companies to obtain an attestation report on the company's internal control over financial reporting from the company's auditors.
Prior to passage of the Dodd-Frank Act, the SEC had repeatedly given non-accelerated filers a reprieve from Section 404(b) of SOX by deferring the deadline for such companies to comply with Section 404(b). Now, thanks to the 111th Congress, that reprieve is permanent. At least until Congress changes its mind again!
Prior to passage of the Dodd-Frank Act, the SEC had repeatedly given non-accelerated filers a reprieve from Section 404(b) of SOX by deferring the deadline for such companies to comply with Section 404(b). Now, thanks to the 111th Congress, that reprieve is permanent. At least until Congress changes its mind again!
Wednesday, September 15, 2010
New Accredited Investor Definition
The impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act is far reaching and in many respects unknowable until regulatory rule making fleshes out the particulars of the new law. One item that is clear is that it just got a lot harder to qualify as an "accredited investor" for the purposes of a so-called Reg D private placement.
A quick background on the term "accredited investor" is probably in order. Those are folks that federal securities regulators (the SEC) have determined are sophisticated enough to make their own financial decisions. Usually a person's accredited investor status is based upon such person's financial net worth. Sales of securities to accredited investors are often exempt from the strict disclosure obligations and registration otherwise applicable to securities sales.
There are several types of accredited investors, such as banks, insurance companies, investment companies and high net worth individuals. It is this final category of accredited investors that has received the most attention from securities regulators. Previously, "any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000." That definition may have made perfect sense at the time such definition was originally adopted, but with inflation and sky-rocketing home values in the last decade, many people who met the technical definition of accredited investor were no longer especially sophisticated.
The Dodd-Frank Act attempts to deal with this issue by excluding the value of a natural person's home from the calculation of the $1,000,000 threshold for accredited investor status. The act also empowers the SEC to further adjust the definition of accredited investor to reflect the impact of inflation or other factors that the SEC determines relevant.
I expect this change in the law will have a profound impact on private companies' access to capital as many former accredited investors will no longer meet the definition and will thus be unlikely participants in private placement transactions.
A quick background on the term "accredited investor" is probably in order. Those are folks that federal securities regulators (the SEC) have determined are sophisticated enough to make their own financial decisions. Usually a person's accredited investor status is based upon such person's financial net worth. Sales of securities to accredited investors are often exempt from the strict disclosure obligations and registration otherwise applicable to securities sales.
There are several types of accredited investors, such as banks, insurance companies, investment companies and high net worth individuals. It is this final category of accredited investors that has received the most attention from securities regulators. Previously, "any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000." That definition may have made perfect sense at the time such definition was originally adopted, but with inflation and sky-rocketing home values in the last decade, many people who met the technical definition of accredited investor were no longer especially sophisticated.
The Dodd-Frank Act attempts to deal with this issue by excluding the value of a natural person's home from the calculation of the $1,000,000 threshold for accredited investor status. The act also empowers the SEC to further adjust the definition of accredited investor to reflect the impact of inflation or other factors that the SEC determines relevant.
I expect this change in the law will have a profound impact on private companies' access to capital as many former accredited investors will no longer meet the definition and will thus be unlikely participants in private placement transactions.
Monday, September 13, 2010
UT-CLE Securities Regulation Conference
I'm pleased to report that I will be in Austin tomorrow serving on the Planning Committee for the 2011 Conference on Securities Regulation and Business Law sponsored by the University of Texas Law School. The conference itself will take place in Dallas, Texas on February 10 - 11, 2011 at the Belo Mansion. If you have an interest in corporate or securities law, you should absolutely make plans to attend this conference. The conference routinely has among its faculty leaders of the Texas and Delaware securities law bar. I'm sure the 2011 conference will be no different.
Tuesday, September 7, 2010
Is it time to embrace the Series LLC?
Have you heard of a Texas "Series LLC"?
If you are like most Texans, your answer is probably no, but the Series LLC has the potential to revolutionize the way in which corporate finance transactions are structured in Texas.
The Series LLC was adopted by the Texas legislature effective September 1, 2009, by adding a new Subchapter M to Title 3 (Limited Liability Companies) of the Texas Business Organizations Code (See Section 101.601 et seq. of the TBOC). The Texas Series LLC statute is patterned after a similar statute adopted by Delaware in 1996.
Here's how it works. A Texas limited liability company can choose to establish one or more series of members, managers, membership interests or assets that has its own separate rights, powers or duties with respect to specified property or profits and losses associated with specified property. So long as proper procedures are followed, debts, liabilities, obligations and expenses of any one series are enforceable only against that series and not against any other series.
Setting up a "Series LLC" is somewhat analogous to setting up a subsidiary company because it permits the parent company to separate out certain assets and operations from the remainder of the company thereby protecting each company's (or each series's) assets and operations from potential claims from creditors of the other company (or series).
An advantage of the Series LLC is that it reduces the administrative burden of setting up multiple subsidiary companies to achieve asset protection goals. A disadvantage is that because the Series LLC concept is new to Texas, creditors and courts are still learning to appreciate this new tool and the scope of its liability protection. There is also a danger that other states may not respect the Series LLC.
I expect that we will see more and more Series LLC's in Texas as companies, creditors and courts become more comfortable with the extent of liability protection offered by the Series LLC.
Special thanks to Sean Bryan who inspired this post by presenting a Continuing Legal Education seminar on this topic last week to the Corporate Counsel Section of the Tarrant County Bar Association.
If you are like most Texans, your answer is probably no, but the Series LLC has the potential to revolutionize the way in which corporate finance transactions are structured in Texas.
The Series LLC was adopted by the Texas legislature effective September 1, 2009, by adding a new Subchapter M to Title 3 (Limited Liability Companies) of the Texas Business Organizations Code (See Section 101.601 et seq. of the TBOC). The Texas Series LLC statute is patterned after a similar statute adopted by Delaware in 1996.
Here's how it works. A Texas limited liability company can choose to establish one or more series of members, managers, membership interests or assets that has its own separate rights, powers or duties with respect to specified property or profits and losses associated with specified property. So long as proper procedures are followed, debts, liabilities, obligations and expenses of any one series are enforceable only against that series and not against any other series.
Setting up a "Series LLC" is somewhat analogous to setting up a subsidiary company because it permits the parent company to separate out certain assets and operations from the remainder of the company thereby protecting each company's (or each series's) assets and operations from potential claims from creditors of the other company (or series).
An advantage of the Series LLC is that it reduces the administrative burden of setting up multiple subsidiary companies to achieve asset protection goals. A disadvantage is that because the Series LLC concept is new to Texas, creditors and courts are still learning to appreciate this new tool and the scope of its liability protection. There is also a danger that other states may not respect the Series LLC.
I expect that we will see more and more Series LLC's in Texas as companies, creditors and courts become more comfortable with the extent of liability protection offered by the Series LLC.
Special thanks to Sean Bryan who inspired this post by presenting a Continuing Legal Education seminar on this topic last week to the Corporate Counsel Section of the Tarrant County Bar Association.
Friday, September 3, 2010
Welcome
Welcome to the North Texas SEC Lawyer blog. I will resist the temptation to refer to this as a "blawg" as other blogs on legal topics have chosen to do. My goal is to share news and information related to corporate and securities law. I hope you find this website informative and occasionally entertaining. Thank you in advance for reading this blog and sharing your comments.
Subscribe to:
Posts (Atom)