Sheppard Mullin

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When Does Software Become Securities?

The SEC Munchee Order and Chairman’s Statement On December 11, 2017, the U.S Securities and Exchange Commission (“SEC”) issued a cease and desist order (“Order”) against Munchee, Inc.’s (“Munchee”) $15 million Initial Coin Offering (“ICO”). The SEC determined that the tokens were investment contracts, and thus securities, primarily because a purchaser of the tokens would have … Continue Reading

The SEC and ICOs: Putting the SEC’s Determination that DAO Tokens are Securities in Context

On July 25, 2017, the U.S. Securities and Exchange Commission (“SEC”) issued a report (“Report”) detailing its investigation into whether the DAO (an unincorporated “decentralized autonomous organization”), Slock.it UG (“Slock.it”), Slock.it’s co-founders, and intermediaries violated the federal securities laws. The SEC determined that the tokens issued by the DAO are securities under the Securities Act of 1933 (“Securities … Continue Reading

Taking Stock in Blockchains

Corporate lawyers and software developers have been watching eagerly as the State of Delaware takes steps to enable Delaware corporations to issue shares of their stock as digital tokens. Instead of recording shares on paper ledgers, corporations will record ownership using “Blockchains”: ledgers that are secured by cryptographic keys that can be distributed around the … Continue Reading

Building a Kick-Ass Team: 5 Lessons

As published on Medium. Sheppard Mullin, along with Silicon Valley Bank, recently co-hosted a panel of seasoned entrepreneurs at Runway on “Building and Motivating a Kick-Ass Team.” The combined experience of these panelists was incredible, and we heard some great advice about how to build and manage teams, which sometimes requires ignoring conventional thinking. The following … Continue Reading

Recent tax law changes of 2013

On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 into law. Summarized below are highlights of those and other changes to Federal tax laws affecting income, payroll, gift and estate, and generation-skipping transfer taxes beginning in 2013.… Continue Reading

FTB issues Notice to Retroactively Deny “Qualified Small Business Stock” Tax Benefits. Amended Returns Should be Filed.

By Matthew Richardson A California appellate court recently held as unconstitutional the California statutes extending the benefits of selling “qualified small business stock” (QSBS) to California taxpayers. In Cutler v. Franchise Tax Board (2012) 208 Cal. App. 4th 1247, the court held that the QSBS exclusion and deferral statutes – California Rev. & Tx. Cd. … Continue Reading

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

By Louis Lehot, John Tishler, Dan Brooks and Jason Schendel 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 … Continue Reading

Coping with Confidentiality Agreements

One of the most common agreements entered into by an emerging company is the confidentiality agreement, also known as a non-disclosure agreement (“NDA”).  You are likely to routinely be involved in discussions with third parties about possible collaboration or partnering, and in these situations it is customary (and recommended) to enter into an NDA before … Continue Reading

New IRS Reporting Rules for Stock Splits, Mergers and Acquisitions

By Matthew Richardson Beginning this year, according to forms or regulations the IRS prescribes, any issuer of a “specified security” will have to file an information return setting forth: a description of any organizational action (occurring after December 31, 2010) that affects the basis of the specified security of the issuer; the quantitative effect on the specified security’s basis resulting from … Continue Reading

Delaware Chancery Court Provides Further Clarification as to When the “Entire Fairness” Standard of Review is Appropriate and How It Will Be Applied

By Stephen LaSala and Courtney Mathes On January 14, 2011, the Delaware Chancery Court issued an opinion in In re John Q. Hammons Hotels Shareholder Litigation that a merger transaction in which a controlling stockholder received consideration different than that received by the minority stockholders met the “entire fairness” standard. This opinion followed the Court’s determination in … Continue Reading

NASDAQ Moves Toward Mandatory Electronic Filing

In July 2010, NASDAQ OMX began permitting companies applying for listing in US markets to submit Listing Applications via its online Listing Center, moving toward its stated goal of migrating all paper-based forms to its electronic platform. Currently the Listing Center supports the electronic submission of Listing Applications and Listing of Additional Shares Notifications. The Listing … Continue Reading

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

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 … Continue Reading

California Court Of Appeal Holds That Privity Of Contract Is Necessary To Maintain An Action For Rescission Under California Corporations Code Sections 25504 And 25504.1

By John Stigi and Taraneh Fard In Viterbi v. Wasserman, 2011 Cal. App. LEXIS 25 (Cal. App. Jan. 11, 2011), the Court of Appeal for the Fourth Appellate District of the State of California affirmed the judgment of the Superior Court of San Diego County holding that privity between the purchaser and seller of a … Continue Reading

Delaware Supreme Court Holds That Chancery Court Is Not Bound By Merger Price Or Fairness Opinion In Appraisal Proceedings Under Delaware General Corporate Law Section 262(h)

By John Stigi and Martin White In Golden Telecom, Inc. v. Global GT LP, 2010 WL 5387589 (Del. Dec. 29, 2010), the Delaware Supreme Court affirmed a judgment of the Delaware Chancery Court in an appraisal proceeding under Section 262(h) of the Delaware General Corporation Law (“DGCL”). Section 262(h) provides that in the event of a … Continue Reading

Extension of 100% Gain Exclusion for Qualified Small Business Stock

By Matthew Richardson Included in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 signed into law on December 17, 2010, a tax incentive relating to qualified small business stock (“QSBS”) was extended for another twelve months.  Pursuant to this extension, noncorporate taxpayers are allowed to exclude all (100%) of their gain from the sale or exchange … Continue Reading

Starting Up the Start-Up: When is the Right Time to Incorporate?

By Riaz Karamali Many social media and social gaming companies have launched products and achieved remarkable viral growth on a relative shoe string, in the process setting a new standard for efficient utilization of capital and human resources. We are frequently approached by new entrepreneurs who are about to launch social media or social gaming ventures and … Continue Reading
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