One of the biggest changes ever in the world of private placements is coming September 23, 2013. That's when the SEC's new Rule 506 becomes effective, permitting "general solicitation" in connection with private placements in which the purchasers are exclusively "verified" accredited investors.
I wrote an article for CityBizList - Dallas about this topic. The article is available here.
Friday, September 6, 2013
Wednesday, August 28, 2013
The Death of Good Standing Certificates in Texas
Virtually every M&A or corporate finance transaction of any significant size includes a requirement that the parties be in "good standing."
A Texas corporation is in "good standing" if it is in existence and it is not delinquent in filing its franchise tax returns to the extent the State of Texas may revoke the corporation's corporate status. Until recently, companies could demonstrate that they were in good standing in Texas by going to the Texas Comptroller's website, searching for the company in question, and printing off a "Certificate of Account Status,” sometimes called a “Certificate of Good Standing.”
But the Certificate of Account Status died effective May 5, 2013. You may not have seen the funeral, but that's when the Texas Comptroller's office ceased issuing Certificates of Account Status.
Nowadays, a company seeking to demonstrate that it is in good standing with the Texas Comptroller's office must search the Comptroller's website for an electronic report labeled "Franchise Tax Account Status." If the company's Right to Transact Business in Texas is shown as "Active" on that page, that means the company is in good standing.
A Texas corporation is in "good standing" if it is in existence and it is not delinquent in filing its franchise tax returns to the extent the State of Texas may revoke the corporation's corporate status. Until recently, companies could demonstrate that they were in good standing in Texas by going to the Texas Comptroller's website, searching for the company in question, and printing off a "Certificate of Account Status,” sometimes called a “Certificate of Good Standing.”
But the Certificate of Account Status died effective May 5, 2013. You may not have seen the funeral, but that's when the Texas Comptroller's office ceased issuing Certificates of Account Status.
Nowadays, a company seeking to demonstrate that it is in good standing with the Texas Comptroller's office must search the Comptroller's website for an electronic report labeled "Franchise Tax Account Status." If the company's Right to Transact Business in Texas is shown as "Active" on that page, that means the company is in good standing.
Wednesday, August 21, 2013
Rule 506 Amendments - The SEC Giveth and Taketh Away
On July 10, 2013, the SEC adopted long-awaited final rules eliminating the prohibition against general solicitation and general advertising in Rule 506 offerings if the issuer of the securities takes reasonable steps to verify that all purchasers of securities in the offering are accredited investors.
Congress instructed the SEC amend to Rule 506 to permit general solicitation in Rule 506 offerings as part of the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act was enacted on April 5, 2012, and required the changes to be made within 90 days (or by July 4, 2012). On July 10, 2013, the SEC announced its final rules implementing the change permitting general solicitation in Rule 506 offerings. The amendment becomes effective September 23, 2013. So by my calculations, the amendment becomes effective only 446 days after the deadline set by Congress in the JOBS Act!
In any event, the amendment to Rule 506 should come as good news for small and mid-sized businesses seeking to raise capital in private placements. Beginning September 23, 2013, there are no longer restrictions on advertising and other means of general solicitation to conduct a valid private placement under Rule 506 if the issuer is careful to verify the accredited investor status of its investors.
On the other hand, the same day that the SEC released its final rule permitting general solicitation, the SEC also adopted or proposed related rules which may restrict the ability of issuers to take advantage of the new general solicitation rules, including:
Congress instructed the SEC amend to Rule 506 to permit general solicitation in Rule 506 offerings as part of the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act was enacted on April 5, 2012, and required the changes to be made within 90 days (or by July 4, 2012). On July 10, 2013, the SEC announced its final rules implementing the change permitting general solicitation in Rule 506 offerings. The amendment becomes effective September 23, 2013. So by my calculations, the amendment becomes effective only 446 days after the deadline set by Congress in the JOBS Act!
In any event, the amendment to Rule 506 should come as good news for small and mid-sized businesses seeking to raise capital in private placements. Beginning September 23, 2013, there are no longer restrictions on advertising and other means of general solicitation to conduct a valid private placement under Rule 506 if the issuer is careful to verify the accredited investor status of its investors.
On the other hand, the same day that the SEC released its final rule permitting general solicitation, the SEC also adopted or proposed related rules which may restrict the ability of issuers to take advantage of the new general solicitation rules, including:
- adopting so-called "bad-boy" disqualifications from Rule 506, which will restrict issuers who are affiliated with felons and other bad actors from participating in Rule 506 offerings;
- proposing new rules which will require additional filings with the SEC in connection with any Rule 506 offering in which the issuer engages in general solicitation, including filing a Form D 15 days before any such general solicitation; and
- adopting strict standards for adequate verification of the accredited investor status of potential purchasers in Rule 506 offerings using general solicitation.
Monday, June 24, 2013
SEC "Likes" Social Media
To tweet or not to tweet, that is the question.
On April 2, 2013, the Securities and Exchange Commission (SEC) issued a report with respect to its investigation into whether or not Netflix, Inc. and its Chief Executive Officer, Reed Hastings, had violated SEC regulations by virtue of Mr. Hastings’ disclosure of material, non-public information about Netflix via his personal Facebook account. The SEC reported that it had chosen not to pursue enforcement action against Netflix or Mr. Hastings, but noted that Facebook posts, Twitter tweets, and other social media postings could violate SEC disclosure rules, such as Regulation FD (Fair Disclosure), if such posts contained material non-public information.
On the other hand, the SEC report confirmed that a publicly traded company could use social media to comply with Regulation FD's requirements to distribute material information about the company so long as the investing public was given prior notice that the company planned to use such social media platform for its public disclosures of company information. This SEC position is analytically consistent with its 2008 release approving disclosure of company information via a public company's website so long as investors were given prior notice of such disclosure method.
A more detailed description of the SEC's Netflix report and SEC regulations implicated by use of social media can be found in an article I wrote for the Dallas Bar Association's "Headnotes" magazine, which is available here.
On April 2, 2013, the Securities and Exchange Commission (SEC) issued a report with respect to its investigation into whether or not Netflix, Inc. and its Chief Executive Officer, Reed Hastings, had violated SEC regulations by virtue of Mr. Hastings’ disclosure of material, non-public information about Netflix via his personal Facebook account. The SEC reported that it had chosen not to pursue enforcement action against Netflix or Mr. Hastings, but noted that Facebook posts, Twitter tweets, and other social media postings could violate SEC disclosure rules, such as Regulation FD (Fair Disclosure), if such posts contained material non-public information.
On the other hand, the SEC report confirmed that a publicly traded company could use social media to comply with Regulation FD's requirements to distribute material information about the company so long as the investing public was given prior notice that the company planned to use such social media platform for its public disclosures of company information. This SEC position is analytically consistent with its 2008 release approving disclosure of company information via a public company's website so long as investors were given prior notice of such disclosure method.
A more detailed description of the SEC's Netflix report and SEC regulations implicated by use of social media can be found in an article I wrote for the Dallas Bar Association's "Headnotes" magazine, which is available here.
Tuesday, May 28, 2013
What the Heck is a Tontine?
I love vocabulary words, so I subscribe to Merriam-Webster's Word of the Day.
May 26th's M-W Word of the Day was "tontine," which is defined as "a joint financial arrangement whereby the participants usually contribute equally to a prize that is awarded entirely to the participant who survives all the others."
When I read that definition, I couldn't help but think of The Simpsons' episode in which it was revealed that Abraham "Grampa" Simpson was part of a tontine arrangement with the other members of his World War II military squad, the Flying Hellfish. Under the terms of the Flying Hellfish's tontine, the last surviving member would inherit all of the valuable paintings found by the squad during the war. Grampa Simpson and Montgomery Burns were the last two surviving Flying Hellfish, so Mr. Burns ordered Grampa's assassination.
The M-W Word of the Day entry says that tontines have been banned because, as with Mr. Burns, "there was just too much temptation for unscrupulous investors to bump off their fellow subscribers."
Reading that assertion got me wondering if Texas has any laws against tontines. Well, I have some bad news for the Flying Hellfish. I was able to find at least one such provision. Section 3.122 of Title 28 (Insurance) of the Texas Administrative Code provides as follows:
"Any life insurance policy which is a tontine policy or which contains a tontine provision will be disapproved. Provisions by which dividends during the participating period are not allocated or paid annually are prohibited as being within the tontine principle unless the policyholder acquires, on termination of the policy, a vested interest in the dividends which have accrued."
May 26th's M-W Word of the Day was "tontine," which is defined as "a joint financial arrangement whereby the participants usually contribute equally to a prize that is awarded entirely to the participant who survives all the others."
When I read that definition, I couldn't help but think of The Simpsons' episode in which it was revealed that Abraham "Grampa" Simpson was part of a tontine arrangement with the other members of his World War II military squad, the Flying Hellfish. Under the terms of the Flying Hellfish's tontine, the last surviving member would inherit all of the valuable paintings found by the squad during the war. Grampa Simpson and Montgomery Burns were the last two surviving Flying Hellfish, so Mr. Burns ordered Grampa's assassination.
The M-W Word of the Day entry says that tontines have been banned because, as with Mr. Burns, "there was just too much temptation for unscrupulous investors to bump off their fellow subscribers."
Reading that assertion got me wondering if Texas has any laws against tontines. Well, I have some bad news for the Flying Hellfish. I was able to find at least one such provision. Section 3.122 of Title 28 (Insurance) of the Texas Administrative Code provides as follows:
"Any life insurance policy which is a tontine policy or which contains a tontine provision will be disapproved. Provisions by which dividends during the participating period are not allocated or paid annually are prohibited as being within the tontine principle unless the policyholder acquires, on termination of the policy, a vested interest in the dividends which have accrued."
Friday, May 17, 2013
5th Annual TECH Fort Worth IMPACT Awards
Earlier this week I attended the 5th Annual TECH Fort Worth IMPACT Awards. TECH Fort Worth is a Fort Worth based incubator and accelerator for inventors and entrepreneurs starting up the next great companies of North Texas. Among other things, TECH Fort Worth helped establish the Cowtown Angels, an organization of local angel investors.
As usual, Darlene Ryan, the Executive Director of TECH Fort Worth, and the rest of her team put on a terrific event. The IMPACT Awards celebrate start-up and early stage North Texas companies who are hoping to impact people's lives in a positive way. Three finalists for IMPACT Awards were chosen in three categories: (1) Energy and Environment, (2) Community, and (3) Health. All of the finalists are (or hope to soon be) doing some pretty amazing things. I was lucky enough to be seated at the same table as representatives of the winner of the Health category, Applied Regenerative Technologies (ART). ART is developing a nerve implant design for restoring nerve function to nerves damaged by trauma.
Congratulations to ART and to all of the finalists! The IMPACT Awards and the entrepreneurial spirit they celebrate are always an inspiration to me.
As usual, Darlene Ryan, the Executive Director of TECH Fort Worth, and the rest of her team put on a terrific event. The IMPACT Awards celebrate start-up and early stage North Texas companies who are hoping to impact people's lives in a positive way. Three finalists for IMPACT Awards were chosen in three categories: (1) Energy and Environment, (2) Community, and (3) Health. All of the finalists are (or hope to soon be) doing some pretty amazing things. I was lucky enough to be seated at the same table as representatives of the winner of the Health category, Applied Regenerative Technologies (ART). ART is developing a nerve implant design for restoring nerve function to nerves damaged by trauma.
Congratulations to ART and to all of the finalists! The IMPACT Awards and the entrepreneurial spirit they celebrate are always an inspiration to me.
Thursday, May 9, 2013
Little Known Facts: Oldest Firm in Fort Worth
One of the neatest things about practicing law at Cantey Hanger LLP is our firm's history. The firm was founded by William Capps and Samuel Benton Cantey in 1882, making it the oldest law firm in Tarrant County and among the oldest law firms in the State of Texas. The firm has at least one client that it has represented for over 100 years.
But Cantey Hanger is not the oldest business in Tarrant County. According to the Fort Worth Business Press, Cantey Hanger ranks as the 5th oldest business in Tarrant County. The distinction as the county's oldest business belongs to Pendery's World of Chiles & Spices, which was founded in 1870. Or should I say that Pendery's is Tarrant County's most seasoned firm?
But Cantey Hanger is not the oldest business in Tarrant County. According to the Fort Worth Business Press, Cantey Hanger ranks as the 5th oldest business in Tarrant County. The distinction as the county's oldest business belongs to Pendery's World of Chiles & Spices, which was founded in 1870. Or should I say that Pendery's is Tarrant County's most seasoned firm?
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