Corporate Governance

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On June 30, 2013, the State of Delaware amended the Delaware General Corporations Law (the “DGCL”) to include two new sections, Section 204 and Section 205 (together, the “Ratification Provisions”). Set to take effect on April 1, 2014, the Ratification Provisions provide Delaware companies with two alternative processes to remedy defective corporate acts that may have previously been deemed void or voidable: by the company itself (under Section 204) or by the Delaware Court of Chancery (under Section 205). Upon the ratification or the validation by either the company or the court, the defective corporate act will be deemed retroactively effective and valid as of the time the defective corporate act was taken.
Continue Reading Applying a Legal Bandaid to Defective Acts: Delaware Law Creates New Procedures to Ratify Defective Corporate Acts

On September 23, 2013, the final rules eliminating the prohibition on general solicitation and advertising for certain offerings under Rule 506 went into effect.  While this development was anticipated with much excitement by the angel and venture capital communities, the final rules have created some uncertainty.  In this blog post, we address some of the speculations about how to do private placements in this new day and age that are floating around the angel and venture capital communities.
Continue Reading Setting The Record Straight On The New General Solicitation Rules

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

This morning the Securities and Exchange Commission, by a 4 to 1 vote of the Commissioners, approved implementing rules under Title II of the Jumpstart Our Business Startups (JOBS) Act to remove the ban on general solicitation for offerings to accredited investors under Regulation D, Rule 506. The SEC has not yet released the final rules as adopted, and we do not yet know what will be the effective date of the final rules. We do however know that the final rules, once effective, will require a Form D to be filed with the SEC at least 15 days in advance of the commencement of any general solicitation for a Rule 506 offering.
Continue Reading SEC Adopts Rules to Remove Ban on General Solicitation for Rule 506 Offerings

Ten months have passed since the SEC proposed rules implementing the requirement of Title II of the JOBS Act that the prohibition against general solicitation and general advertising in Rule 506 be eliminated. Those proposed rules were issued nearly two months after the 90 day deadline in the JOBS Act for final rules dealing with this matter. Since the publication of these proposed rules, the SEC has gone through two Chairpersons, neither of whom moved the ball forward. Thus, despite the requirements of the JOBS Act, an issuer conducting an offering pursuant to Rule 506 still cannot generally solicit people to find out (a) whether they meet the requirements for accredited investors and (b) if so, whether they would be interested in making an investment in the issuer.
Continue Reading Still Banned: General Solicitation in Rule 506 Offerings

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 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