There are several reasons that a California corporation may want to reincorporate to Delaware. Venture capital funds or other investors may demand a reincorporation to Delaware as a condition to financing. Cumulative voting for director elections, required for California corporations but not required for Delaware corporations, may have become a problem. The corporation may want to take advantage of the flexibility of Delaware’s business laws, the abundance of legal precedent and the availability of the Court of Chancery to resolve corporate disputes. Whatever the reason, reincorporating from California to Delaware may be more challenging than originally anticipated due to a few complicating factors: (1) California’s long-arm statute, (2) the availability of exemptions from registration and qualification under state and federal securities laws and (3) restrictions under the company’s contracts.[1]
Continue Reading Not So Fast – Challenges in Reincorporating from California to Delaware

On October 24, 2013, in accordance with Title III of the Jumpstart Our Business Startups Act (the “JOBS Act”), the Securities and Exchange Commission (the “SEC”) issued a press release and published long-awaited proposed rules (Release Nos. 33-9470; 34-70741) (the “Proposed Rules”) to permit companies to offer and sell securities through crowdfunding (“Regulation Crowdfunding”).
Continue Reading Crowdfunding Moves Forward: The SEC Issues Proposed Rules on Crowdfunding

On Friday October 3, 2013, Governor Brown signed into law AB 1412, which provides full relief for individuals affected by the decision in Cutler v. Franchise Tax Board, where the California Court of Appeal held that the California tax incentives relating to the sale of qualified small business stock discriminated against interstate commerce and were therefore unconstitutional.


Continue Reading California Tax Relief for Sellers of Qualified Small Business Stock

In In re Trados Inc. Shareholder Litigation, Case No. 1512-VCL, 2013 Del. Ch. LEXIS (Del. Ch. Aug. 16, 2013), Vice Chancellor Laster of the Court of Chancery of the State of Delaware resolved the long-pending dispute involving the 2005 sale of Trados Inc. (“Trados”) to SDL plc for approximately $60 million. The Court held that the transaction, which benefited the preferred stockholders and certain executives of Trados but left the common stockholders with nothing, was procedurally flawed but ultimately fair to the company’s stockholders. The Court reviewed the decision of the board of directors approving the sale under the “entire fairness standard” which is the most stringent standard of review in Delaware. The decision serves as a cogent reminder to private equity and venture capital investors that they should run a proper sale process when planning a liquidity event in particular if certain constituents of the corporation will not benefit from the liquidation.


Continue Reading Delaware Chancery Court Finds Merger “Entirely Fair” to Common Stockholders Despite the Merger Leaving Common Stockholders With No Consideration for Their Shares

On July 10, 2013, the SEC adopted the amendments required under the JOBS Act to Rule 506 that would permit issuers to use general solicitation and general advertising to offer their securities, subject to certain limitations. In addition, the SEC amended Rule 506, as required by the Dodd-Frank Act, to disqualify felons and other bad actors from being able to rely on Rule 506. The long-awaited new rules will allow issuers that are permitted to rely on Rule 506 to more widely solicit and advertise for potential investors, including on the Internet and through social media.

The SEC also adopted an amendment to Rule 144A that provides that securities may be offered pursuant to Rule 144A to persons other than qualified institutional buyers, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are qualified institutional buyers.


Continue Reading SEC Eliminates the Prohibition on General Solicitation for Rule 506 and Rule 144A Offerings

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act, enacting it into law. The JOBS Act is intended to make it easier for smaller and earlier stage companies to raise capital and also to revitalize the U.S. market for initial public offerings, which has been in decline since the beginning of the last decade.

The provisions of the JOBS Act represent a watershed change to the laws and regulations governing capital raising for private companies. Some of the provisions – such as the “IPO on-ramp” provisions and the increase in the number of holders triggering mandatory registration and public reporting under the Securities Exchange Act of 1934, are effective immediately. Others, including the new crowdfunding exemption, the removal of the ban on general solicitation for offerings under Rule 506 to accredited investors and Rule 144A to QIBs, and the new exemption modeled on Regulation A, will require SEC rulemaking before they come into force.

We have previously blogged about the original House version of the Act and the changes the Senate adopted, which changes were enacted into law. This article discusses the full Act as enacted.


Continue Reading President Obama Signs JOBS Act: Landmark Reform for Small and Emerging Growth Companies Now Law

On March 22, 2012, the Senate passed the Jumpstart Our Business Startups (JOBS) Act by a vote of 73-26. The House of Representatives passed the JOBS Act on March 8, 2012 by a vote of 390-23. The Senate bypassed its typical committee process to rush the bill to a floor vote. Legislators in both parties and the President have adopted the JOBS Act as an election-year demonstration of their commitment to small businesses and entrepreneurialism, and they have paid little heed to strongly-worded opposition from SEC Chairman Mary Schapiro, state regulators and organizations ranging from the Council for Institutional Investors to the AARP.


Continue Reading Senate Passes Modified JOBS Act – Regulatory Reform for Small and Emerging Growth Companies Speeds Closer to Fruition

Building on months of momentum in Congress, on March 8, 2012, the U.S. House of Representatives passed the Jumpstart Our Business Startups (JOBS) Act by a bi-partisan vote of 390-23. A similar bill, S. 1933, has been introduced in the Senate and may be voted on this month. The JOBS Act is intended to address the sharp decline in U.S. public offerings during the last decade and to facilitate capital raising by smaller companies. The provisions of the JOBS Act will, if enacted, represent a watershed change to the laws and regulations governing capital raising for private companies and would create a limited, temporary and scaled regulatory compliance pathway, referred to as an “IPO on-ramp,” for companies going public and newly public companies. The IPO on-ramp is designed to reduce the costs and uncertainties of accessing public capital.


Continue Reading The March Towards Meaningful Reform for Small and Emerging Growth Companies Moves Forward – House Passes Measures to Open Private Capital Raising and Facilitate an On-Ramp of New IPOs

Just before 2011 year-end, the SEC adopted final rules first proposed in January 2011 to exclude the value of an investor’s home when determining if an investor meets the net worth test for an accredited investor. A person’s status as an accredited investor affects eligibility, sophistication and information requirements for certain unregistered securities offerings. The final rules differ from the proposed rules by addressing home equity indebtedness incurred in the 60 days prior to an offering, and by grandfathering securities purchase rights held prior to enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank").


Continue Reading Regulatory Update: SEC Adopts Final Rules Defining “Accredited Investor” Consistent with Dodd-Frank

On April 6, 2011, Mary L. Schapiro, Chairman of the Securities and Exchange Commission ("SEC") sent a letter to Darrell E. Issa, Chairman of the Committee on Oversight and Government Reform, responding to a March 22, 2011 letter from Rep. Issa concerning capital formation issues. In her letter, Chairman Schapiro indicated that the SEC would consider revising the rules that govern the way in which small businesses are able to tap into equity markets in the new era of crowdfunding, social media and other new communications media that did not exist when the current SEC rules were established. Rep. Issa’s letter discussed a number of perceived problems encountered in recent securities offerings, including the January 2011 decision by Goldman Sachs and Facebook to offer shares in a $1.5 billion private offering only outside the U.S. In her letter, Chairman Schapiro indicated that the review is intended to give the SEC "a fresh look at our rules to develop ideas for the Commission about ways to reduce the regulatory burdens on small business capital formation in a manner consistent with investor protection."


Continue Reading SEC Considering New Regulations Governing Capital Formation for Smaller Companies, Crowdfunding, Social and Other New Media

On January 25, 2011, the SEC proposed new amendments to conform the definition of “accredited investor” under Rule 215 of the Securities Act of 1933 and Rule 501 of Regulation D to requirements imposed by Congress under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Various exemptions for private or other limited offerings of securities under the Securities Act of 1933 and state “blue sky” laws depend on whether participants are “accredited investors.” Non-accredited investors who participate in private offerings under Rule 505 or Rule 506 of Regulation D must receive financial and other information that is not required to be given to accredited investors.
 


Continue Reading SEC Proposes Amendments To Reflect Dodd-Frank’s Definition Of “Accredited Investor”