New York partner Rashida La Lande is the author of "Deals With Controlling Stockholders: 5 Tips for Boards" [PDF] published on November 2, 2011 on Boardmember.com.
New Rule 13h-1: The SEC Adopts a Large Trader Reporting System
Washington, D.C. of counsel K. Susan Grafton is the author of "New Rule 13h-1: The SEC Adopts a Large Trader Reporting System" [PDF] published in the October 31, 2011 issue of BNA’s Securities Regulation & Law Report.
California Adopts Two New Corporate Forms to Advance Social Benefits
On October 9, 2011, California Governor Jerry Brown signed into law competing bills that create two new corporate forms in California — a "flexible purpose corporation" and a "benefit corporation" — intended to allow entrepreneurs and investors the choice of organizing companies that can pursue both economic and social objectives. The new corporate forms differ from traditional for-profit corporations that are organized to pursue profit (and not social purposes) and non-profit corporations that must be used solely to promote social benefits. These laws will take effect on January 1, 2012.
SEC Hosts Roundtable on Conflict Minerals
On October 18, 2011, the Securities and Exchange Commission ("SEC" or "Commission") held a public roundtable (the "Roundtable") to address the agency’s required conflict minerals rulemaking under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
SEC’s Division of Corporation Finance Releases Legal Bulletin Clarifying Expectations with Respect to Registered Offering Opinions
Registration statements under the U.S. Securities Act of 1933, as amended, generally require a signed opinion of counsel regarding the legality of the securities being offered and sold. These opinions must be filed as an exhibit to the registration statement, typically before it becomes effective, and are commonly referred to as “Exhibit 5” opinions.
Delaware Court of Chancery Issues Important Guidance for Special Committees Negotiating M&A Transactions with Controlling Stockholders
On October 14, 2011, Chancellor Strine of the Court of Chancery of the State of Delaware issued a decision in In re Southern Peru Copper Corp. Shareholder Derivative Litig., C.A. No. 961-CS. In the 105-page decision, Chancellor Strine ultimately found that the controlling stockholder defendants had breached their fiduciary duty of loyalty and awarded damages of over $1.2 billion, which may be paid by the controlling stockholder by returning some of the stock consideration received from the controlled company in the transaction. The decision provides important guidance for companies engaging in M&A transactions with their controlling stockholders.
SEC Issues Interpretive Guidance on Cybersecurity Disclosures Under U.S. Securities Laws
On October 13, 2011, the staff of the Securities and Exchange Commission ("SEC") released disclosure guidance regarding public company disclosure obligations relating to cybersecurity risks and cyber incidents (the "Disclosure Guidance")."[1] The Disclosure Guidance reviews specific SEC disclosure rules that may require public companies to describe cybersecurity matters and provides SEC staff guidance on what type of disclosure, if any, may be necessary in light of a company’s particular facts and circumstances. The Disclosure Guidance is available at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm. Cybersecurity is only the second topic to be addressed in the Division of Corporation Finance’s new Disclosure Guidance publications.Background
Observations on Key Corporate Governance Impacts of Dodd-Frank
Washington, D.C. partner John F. Olson is the author of "Observations on Key Corporate Governance Impacts of Dodd-Frank" [PDF] published in the September issue of U.S. News’s Best Lawyers "BEST LAW FIRMS’ 2010.
California Amends Corporations Code to Liberalize and Streamline Legal Standards for Corporate Distributions and Dividends
On September 1, 2011, the Governor of California signed into law California Assembly Bill No. 571 (“AB 571”), which will liberalize and streamline the legal standards for California corporations and quasi-California corporations to make cash and property distributions to shareholders, including dividends and share repurchases and redemptions. AB 571 amends portions of the California Corporations Code (the “Code”) limiting corporate distributions that have been in effect since 1977, which many lawyers and clients have found confusing and overly restrictive. The new law will make California’s restrictions on shareholder distributions more consistent with analogous restrictions applicable to California limited liability companies and limited partnerships and the corporate laws of most other states. With AB 571, boards of directors of corporations will be free to consider the fair market value of a corporation’s assets, instead of historical carrying cost, and rely on whatever financial information a board deems reasonable under the circumstances, when determining whether the corporation has sufficient assets relative to its liabilities to distribute cash or property to its shareholders. This change alone will make it significantly easier for financially healthy corporations with historical book losses and appreciated assets (as is common with many growth companies) to pay dividends or redeem or repurchase shares.
Public Company Accounting Oversight Board Considers Mandatory Audit Firm Rotation
On August 16, 2011, the Public Company Accounting Oversight Board (“PCAOB”) issued a Concept Release on Auditor Independence and Audit Firm Rotation (“Concept Release”). The Concept Release, available at http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf, solicits public comment on steps it could take under its existing authority to enhance auditor independence, objectivity, and professional skepticism, including, most notably, imposing for the first time mandatory audit firm rotation on public companies.