Wednesday, May 16, 2012

Little Known Fact: Director and Officer Liability for Failure to pay Franchise Tax

Directors and officers can be a risk averse group.  They write provisions into their corporate charters and bylaws providing for various levels of exculpation and indemnification.  They take out D&O liability insurance.  They enjoy the benefits of the Business Judgment Rule, which generally protects business decisions made by the board of directors from judicial scrutiny.

But one area of potential liability for directors of Texas corporations that might easily be overlooked is Section 171.255(a) of the Texas Tax Code.  That section provides:  "If the corporate privileges of a corporation are forfeited for the failure to file a report or pay a tax or penalty, each director or officer of the corporation is liable for each debt of the corporation that is created or incurred in this state after the date on which the report, tax, or penalty is due and before the corporate privileges are revived. . ."

If a Texas corporation does not file its franchise tax reports and pay its franchise tax, directors and officers of the corporation can be liable as if they were partners and the corporation were a partnership.  See Section 171.255(b) of the Texas Tax Code.

Thus, if you are an officer or director of a corporation chartered or doing business in Texas, it is a very good idea to stay current on your franchise tax reports and payments!

Wednesday, May 9, 2012

IPO's in 2011

What can be said about the initial public offering (IPO) market for 2011?

It was much better than 2008.

According to Practical Law The Journal (a terrific publication, by the way), there were 61 IPOs of $50 million or more by United States companies in 2011.  That's down 18% from 2010, but up 70% from 2008.  The hottest industry was social media/Internet, which accounted for 33% of 2011's US IPOs.  As of December 31, 2011, there was a backlog of 202 companies that have filed their initial registration statements but have not yet had their IPOs go effective.

Tuesday, May 8, 2012

Notarized Signatures in Texas

Ever wonder why certain legal documents have to be notarized?

Well, a deed conveying real property must be notarized (or "acknowledged, sworn to with a proper jurat, or proved according to law") in order to be recorded in the real property records of the appropriate county, as required by Section 12.001 of the Texas Property Code.

So what is the proper form of acknowledgment to be used by a notary public (or other appropriate officer)?

That is covered in Chapter 121 of the Texas Civil Practice and Remedies Code ("TCPRC").

Personally, I prefer to use the short form acknowledgment which is authorized by Section 121.008 of the TCPRC and reads as follows (assuming the signatory is a natural person):

"State of Texas
County of ________

This instrument was acknowledged before me on (date) by (name or names of person or persons acknowledging).

(Signature of officer)
(Title of officer)
My commission expires: ________"

Tuesday, May 1, 2012

What is CF Disclosure Guidance?

What is CF Disclosure Guidance?

Here's a hint, it has nothing to do with Cystic Fibrosis or the University of Central Florida (sorry, fighting Patriots!).

CF Disclosure Guidance is a collection of guidance letters released by the SEC's Division of Corporate Finance. The SEC has issued five CF Disclosure Guidance letters since September 14, 2011, covering the following topics:

  • Topic No. 1: Staff Observations in the Review of Forms 8-K Filed to Report Reverse Mergers and Similar Transactions (9/14/11)
  • Topic No. 2: Cybersecurity (10/13/11)
  • Topic No. 3: Staff Observations in the Review of Promotional and Sales Material Submitted Pursuant to Securities Act Industry Guide 5 (12/19/11)
  • Topic No. 4: European Sovereign Debt Exposures (1/6/12)
  • Topic No. 5: Staff Observations Regarding Disclosures of Smaller Financial Institutions (4/20/12)
The purpose of CF Disclosure Guidance is to put issuers on notice of frequent SEC comment letter topics.  The CF Disclosure Guidance is available on the SEC's website here: