A subsidiary spin-off is a transaction where a parent corporation’s stock ownership of a subsidiary is distributed to the parent corporation’s shareholders giving the shareholders direct ownership of the former subsidiary. Typically, the subsidiary shares are distributed to the shareholders pro rata as a dividend. In fact, two of the requirements for an unregistered spin-off, as set forth in Staff Legal Bulletin No. 4 issued by the Securities and Exchange Commission, are that the distribution be pro rata and that no consideration be paid by the shareholders (i.e. a dividend).

A more complex form of a spin-off is commonly referred to as a Reorganized (“D”/355) which is where the parent corporation forms a shell subsidiary, transfers the stock to the shell subsidiary, which in turn distributes the stock to the parent shareholders.

Reasons for Spin-Offs

There are many reasons a company may choose to complete a spin-off, however, the most common reasons include: (i) to separate profit centers to increase shareholder value; (ii) shedding in-house providers to free up regulatory or other conflicts; and (iii) separating regulated and unregulated businesses.

Using a dividend to distribute the subsidiary stock usually means no shareholder vote or approval is required. However, a vote may be required if the subsidiary constitutes all or substantially all of the parent’s assets. Practitioners must review state corporate law to be sure to abide by voting requirements.

Parent Company Compliance

Under federal securities laws, if a vote is required, the parent must comply with the proxy requirements of Section 14 of the Exchange Act of 1934 and the rules promulgated thereunder. If no shareholder vote is required, the parent corporation must comply with Staff Legal Bulletin No. 4. In particular, the subsidiary shares (the shares distributed to the parent company shareholders) do not need to be registered if the following five conditions are met: (i) the parent shareholders do not provide consideration for the spun-off shares; (ii) the spin-off is pro-rata to the parent shareholders; (iii) the parent provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; (iv) the parent has a valid business purpose for the spin-off; and (v) if the parent spins-off restricted securities, it has held those securities for at least one year. Below is a discussion of each of the five conditions.

The mechanics of actually distribution the subsidiary shares involve: (i) setting the exchange ratio; (ii) fixing the record date; and (iii) having the transfer agent issue and mail the shares.

The risks of a spin-off are generally minimal and include losing valuable revenue of the subsidiary and shareholder complaints or lawsuits.

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

In today’s financial environment, many Issuers are choosing to self underwrite their public offerings, commonly referred to as a Direct Public Offering (DPO). Moreover, as almost all potential investors have computers, many Issuers are choosing to utilize the Internet for such DPO’s. The Securities and Exchange Commission (SEC) has published rules for utilizing the Internet for an offering.

To comply with the SEC rules for electronic use, an Issuer must comply with the following minimum rules, among others:

• An electronic prospectus must provide the same information as a paper written prospectus;
• The Investor must elect to receive electronic delivery of the prospectus and must be provided with personal access codes to access electronic materials over the Internet;
• The Investor must pre-qualify to receive the offering materials (such as being in a particular state, being accredited, etc.) prior to receiving access codes;
• The Investor must be immediately notified of any amendments or changes in the offering documents; and
• The Issuer must have a system for evidencing delivery of materials and maintaining copies of any correspondence and communications by and between the Issuer and Investor through electronic means;

State and Federal Securities Laws

The National Securities Markets Improvement Act of 1996 preempts state registration requirements of certain federally covered securities including most registered offerings and offerings exempt under Rule 506 of Regulation D of the Securities Act of 1933. However, for offerings that are not preempted by the 1996 Act, state securities laws must be reviewed and abided by.

Practically all states have adopted statutes, rules, orders or policies exempting Internet offerings and governing their mechanics. Compliance with the various state securities law requirements may be daunting, however, an Issuer can utilize disclaimers to mitigate the risks of violations. The disclaimers can be general, focusing on the state(s) where the securities are being offered and indicating that the offering is not made to persons elsewhere, or more specific disclaiming an offering in a particular state. Again, an Issuer must maintain control over the potential investors that review its offering documents through access procedures and other internal controls.

Silence is Golden

As with all offerings, Issuers should be careful not to condition the market or discuss the offering on their website with access to offering information being given only to prequalified potential investors.

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

In a typical “equity line” financing arrangement, an investor and an Issuer enter into a written agreement whereby the Issuer has the right to “put” its securities to the investor. That is, the Issuer has the right to tell the investor when to buy securities from the Issuer over a set period of time and the investor has no right to decline to purchase the securities (or a limited right to decline). Generally the dollar value of the equity line is set in the written agreement, but the number of securities varies based on a formula tied to the market price of the securities at the time of each “put”.

Similar to PIPE Transactions

Most equity line financing arrangements are similar to a PIPE (private investment into public entity) transaction such that the Issuer relies on the private placement exemption from registration to sell the securities under the equity line and then files a registration statement for the re-sale of such securities by the investor. However, where in a PIPE transaction the investor bears the risk, in an equity line transaction, the investor often bears little risk due to the delayed nature of the puts coupled with the price of the securities being a formula tied to market price. Accordingly, the SEC views equity line financing registrations as indirect primary offerings.

Although the SEC views the equity line as an indirect primary offering, it allows the filing of re-sale type registrations if the following conditions are met:

• The Issuer must have completed the private transaction prior to filing the registration statement (i.e. both parties must be fully contractually bound with all material points agreed upon)
• The “resale” registration statement must be on the form that the Issuer is eligible to use for a primary offering; and
• In the prospectus the investors must be identified as both underwriter(s) and selling shareholder(s).

Investors Must Be Bound to Purchase All Securities

In order for the first condition to be met, the Investor must be irrevocably bound to purchase all the securities. That is, only the Issuer can have the right to exercise the put and, except for conditions outside the investor’s control, the investor must be irrevocably bound to purchase the securities once the Issuer exercises the put. In addition, the obligations of the Investor must be non-assignable to meet the “irrevocably bound” condition.

Investors May Not Possess Ability to Make Investment Related Decisions

Moreover, if the Investor has the ability to make investment related decisions under the terms of the contract, they will not be deemed to be irrevocably bound allowing for the filing of a re-sale registration statement. Examples of investment decisions that would viewed by the SEC as creating a continuing transaction (and not a completed transaction allowing for the filing of a registration statement), include:

• Agreements that give the Investor the right to acquire additional securities (including through warrants) at the same time or after the Issuer exercises a put;
• Agreement that permit the Investor to decide when or at what price to purchase the securities underlying the put;
• Agreements with termination provisions that have the effect of causing the Investor to no longer be irrevocably bound to purchase the securities; and
• Agreements that allow the Investor to exercise a “due diligence out”.

However, the Agreements may allow for customary “bring downs” as conditions to closing such as customary representations and warranties and customary clauses regarding no material adverse changes affecting the Issuer that would be within the Investors control.

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

SEC Rule 10b-18 provides issuers with a safe harbor from liability for market manipulation under Sections 9(a)(2) and 10(b) of the Exchange Act and Rule 10b-5 under the Exchange Act when issuers bid for or repurchase their common stock in the market in accordance with the Rule’s manner, timing, price and volume conditions. Each of the conditions of Rule 10b-18 must be satisfied on each day that a repurchase is made.

Rule 10b-18

The material portions of Rule 10b-18 are as follows:

Definition. A “Rule 10b-18 purchase” is generally defined as a purchase or any bid or limit order of an issuer’s common stock by or for the issuer or any of the issuer’s affiliated purchasers.

To be able to rely on Rule 10b-18 in make repurchases, the following four (4) conditions must be met.

1. Time of Purchase. The Rule restricts issuers from making repurchases that constitute the opening transaction in the security on a trading day, or that occur during the last 30 minutes before the scheduled close of trading. However, the limitations on purchases at the close vary depending on the average daily trading volume (”ADTV”) and public float. Issuers with more liquid securities (i.e. issuers with an ADTV of $1 mil-lion or more and a public float value of $150 million or more) would be restricted from bidding for or purchasing their securities during any of the following periods: (1) in the 10 minutes before the scheduled close of the regular trading session in the principal market for the security; (2) the 10 minutes before the scheduled close of the regular trading session in the market where the purchase is made; and (3) after the termination of the period in which last sales prices are reported in the consolidated system.
2. Price of Purchases. The purchase price cannot exceed the higher of the highest independent bid or the last independent transaction price.
3. Volume of Purchases. The Rule limits the amount of securities an issuer may repurchase on the market on a single day to 25% of the four-week average daily trading volume in its shares (that is, the average daily trading volume during the four calendar weeks prior to the week in which the 10b-18 purchase is to be made). However, issuers are permitted to make one block purchase of its common stock per week outside of the volume restrictions. Issuers have to include block purchases in applying the 25% vol-ume limitation. However, issuers would also be permitted to include block purchases in calculating the ADTV for their securities, thereby increasing the amount of stock able to be purchased within the safe harbor. The Rule defines a “block” as a quantity of stock that (1) has a purchase price of $200,000 or more, (2) is at least 5,000 shares and has a purchase price of at least $50,000, or (3) is at least 20 round lots of the security and totals 150% or more of the ADTV of that security. As an alternative to the 25% vol-ume limitation, issuers are allowed purchase up to a daily aggregate amount of 500 shares regardless of the ADTV of the security. Thus, an issuer’s purchases, on any single day, may not exceed the higher of 25% of the ADTV for the issuer’s security or a daily aggregate amount of 500 shares.
4. Manner. The Rule requires an issuer to use only one broker or dealer (per day) to bid for or purchase its common stock.

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels pri-vate and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

Delaware corporate and alternative entity law has long been the model for other states in drafting statutes and for practitioners in advising clients and preparing limited partnership agreements and limited liability company membership agreements.

In 2005 the Delaware legislature amended its Limited Liability Company Act and Revised Uniform Limited Partnership Act to provide drafters of LP and LLC agreements with broad flexibility to modify default fiduciary duties. Both Acts now provide that default fiduciary obligations mat be restricted or eliminated, provided that the implied covenant of fair dealing and good faith may not be eliminated. Many states have followed suit.

Delaware Corporate Law

Under Delaware law, the purpose of the implied covenant of fair dealing and good faith is to enforce the reasonable expectations of parties to a contract where situations arise that are not expressly contemplated and provided for in the language of the contract itself. Although the covenant of good faith and fair dealing itself cannot be waived, Delaware courts will not infer specific obligations that do not appear in the LLC or LP agreement. Moreover, courts will not override express provisions in the agreements. Accordingly, it is incumbent upon parties to set forth clear and unambiguous provisions to avoid doubt later. For instance, where management is entitled to compete with a company or exercise sole and unfettered discretion on matters, such provisions need to be clear and explicit.

With respect to discretionary acts, it is very important to spell out the scope of such discretion. If the intent is to allow the General Partner act in its own best interest, it needs to be so stated. Sample sole discretion language which has been upheld is as follows:

      “Notwithstanding any other provision of this Agreement or otherwise applicable provision of law or equity, whenever in this Agreement, the General Partner is permitted or required to make a decision in its sole discretion or under a grant of similar authority or latitude, the General Partner shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall, to the fullest extent permitted by applicable law, have no duty or obligation to give any consideration to any interest of or factors affecting the Partnership or Limited Partnership.”

The bottom line is that parties to an LLC or LP Agreement cannot underestimate the necessity to specifically set forth any fiduciary obligations and expectations to each other to avoid the application of statutory default obligations, which can be cumbersome and unintended.

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

Historically the regulation of corporate law has been firmly within the power and authority of the states. However, over the past few decades the federal government has become increasingly active in matters of corporate governance. Typically this occurs in waves as a response to periods of scandal in specific business sectors or in the financial markets. Traditionally, when the federal government intervenes in these situations, they enact regulation either directly or indirectly by imposing upon state corporate regulations.

Specifically, the predominant method of federal regulation of corporate governance is through the enactment of mandatory terms that either reverse or preempt state laws on the same point. The most recently prominent example is the passing of the Sarbanes Oxley Act of 2002 (SOX).

Sarbanes Oxley (SOX)

SOX regulates corporate governance in five matters: (i) SOX prevents corporations from engaging the same accounting firm to provide both audit and specified non-audit services; (ii) SOX requires that audit committees of listed companies be composed entirely of independent directors and to disclose which such directors are financial experts; (iii) SOX requires that the corporation’s CEO and CFO certify that the periodic reports do not contain material misstatements or omissions and that the financial statements are accurate; (iv) SOX compels forfeiture of CEO and CFO incentive compensation in the event of an earning restatement; and (v) SOX bars corporations from making loans to executive officers.

Each of these provisions requires the corporation to govern itself accordingly, regardless of whether the board of directors deems the actions to be a useful deployment of resources and regardless of the individual facts and circumstances surrounding that corporate entity. Such provisions limit the ability of directors to negotiate, research and agree to corporate actions that solve and address the unique challenges faced by their individual organization. That is, each of these mandates directly contradicts the essence of state corporate governance.

Delaware and Model Act

State corporate law is generally based on the Delaware and Model Act and offers corporations a degree of flexibility from a menu of reasonable alternatives that can be tailored to companies’ business sectors, markets and corporate culture. Moreover, state judiciaries review and rule upon corporate governance matters considering the facts and circumstances of each case and setting factual precedence based on such individual circumstances. The traditional fiduciary duties that govern state corporation laws include the duties of care and loyalty and are tempered by the business judgment rule.

Duty of Care

The duty of care requires that directors exercise the same level of care that would be expected from an ordinarily prudent person in the conduct of his or her own affairs. This includes making an informed decision, seeking the advice of experts when necessary and considering both the positive and negative impacts of a decision. The duty of loyalty is essentially a proscription against conflict of interest and self dealing. The business judgment rule basically says that if a director follows both his duty of loyalty and duty of care, than the decision should be deferred to.

Although the federal government may have the right motives in enacting regulations which effect corporate governance, there is always controversy when they cross “sate lines.” State regulators and judiciaries are usually the best posture to establish and enforce corporate governance regulations. It is a given that director actions that result in a fraud upon shareholders and investors is actionable under federal (and state) securities laws, however, it is still questionable as to whether the federal government is the proper regulatory authority to set forth particular mandates of director responsibility.

Delaware Corporations Act

The Delaware Corporations Act together with decisions of the Delaware Court of Chancery provides a reliable source for corporate governance matters. These state laws allow for the quick response to emerging problems in a way that the strict mandates of the federal government cannot.

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

A spin-off occurs when a parent company distributes shares of a subsidiary to the parent company’s shareholders such that the subsidiary separates from the parent and is no longer a subsidiary. In Staff Legal Bulletin No. 4, the Securities and Exchange Commission (SEC) explains how and under what circumstances a spin-off can be completed without the necessity of filing a registration statement.

In particular, the subsidiary shares (the shares distributed to the parent company shareholders) do not need to be registered if the following five conditions are met: (i) the parent shareholders do not provide consideration for the spun-off shares; (ii) the spin-off is pro-rata to the parent shareholders; (iii) the parent provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; (iv) the parent has a valid business purpose for the spin-off; and (v) if the parent spins-off restricted securities, it has held those securities for at least one year. Below is a discussion of each of the five conditions.

Essential Conditions

The first condition is that the parent shareholders do not provide consideration for the spun-off shares. This is because if value is provided, a “sale” has occurred and a “sale” requires registration under Section 5 of the Securities Act of 1933, as amended, unless an exemption is available. In a spin-off, an exemption is rarely available due to the wide variety of shareholders receiving the spun-off shares.

The second condition is that the spin-off must be pro rata. When the spin-off is pro rata, the parent shareholders have the same proportionate interest in the parent and the subsidiary both before and after the spin-off. If a spin-off is not pro rata, the shareholders’ relative interests change and some shareholders give up value for the spun-off shares, requiring registration pursuant to the first condition.

The third condition requires that adequate information be provided to the shareholders. If the subsidiary is a non-reporting company it can satisfy this condition by providing the shareholders with an information statement which satisfies the Section 14 proxy rules of the Securities Exchange Act of 1934 prior to or contemporaneously with providing the spun-off shares. In addition, the non-reporting subsidiary must file a Form 10 registration statement, which can be accomplished after the spin-off but prior to trading on the spun-off subsidiary, begins. A reporting subsidiary is deemed to have satisfied its information requirements as long as it is current in its reporting obligations, plus provides any pertinent information directly related to the spin-off itself.

Adequate Information Requirement

Where both the parent company and the subsidiary are non-reporting, the adequate information requirement is met if the by the date of the spin-off: (i) the parent provides the shareholders with an information statement which satisfies the Section 14 proxy rules of the Securities Exchange Act of 1934’ (ii) the shares are restricted until such time as a Form 10 is filed; and (iii) the transfer restrictions are enforced such as by means of stop transfer instructions to the transfer agent.

The fourth condition is that there is a valid business purpose for the spin-off. Although there may be many valid business purposes, the SEC specifically recognizes the following as valid: (i) allowing management of each business to focus solely on that business; (ii) providing employees of each business stock-based incentives linked solely to her or her employer; (iii) enhancing access to financing by allowing investments into each business separately; and (iv) enabling the companies to do business with each other’s competitors.

Invalid Purposes

Likewise, although there are numerous purposes that would not be valid, the SEC specifically lists the following as not valid: (i) creating a market in the spun-off securities without providing adequate information and (ii) creating a public market in a shell or development stage company.

Finally, the last condition is that the parent has held the shares for a minimum of one year. This is so the receiving shareholder may tack with the parent’s holding period and thereby satisfy the holding period requirements of Rule 144.

The SEC has also taken the position, that as long as all the above conditions have been satisfied, the spin-off will not require registration under Rule 145 merely because the shareholders have voted on the spin-off and/or assets are transferred into the subsidiary as part of the spin-off. Furthermore, except where specifically delineated above (non-reporting parent and subsidiary) as long as all the above conditions are satisfied, the shares issued in the spin-off are not restricted securities.

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

If you are a private company looking to go public on the OTCBB, securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel. Ms. Anthony counsels private and small public companies nationwide regarding reverse mergers, corporate transactions and all aspects of securities law.

As of December 1, 2008, the Financial Industry Regulation Authority (FINRA) began a new policy for effectuating corporate actions for OTCBB quoted and traded securities (securities quoted and traded on the Over the Counter Bulletin Board and the PinkSheets). Corporate actions include anything that would require notification to FINRA and the issuance of a new trading symbol, such as a name change, reverse or forward stock split.

Prior to the initiation of the new procedures, Issuers making corporate changes were only required to submit a short cover letter explaining the action and providing the new CUSIP number. In addition, they were required to submit a copy of the documents evidencing the corporate action, including board and shareholder consents and amended articles of incorporation. In addition, transfer agents were and are still required to submit transfer agent verification forms at least ten days prior to the effective date of the corporate action.

New Procedure and Exhibits

The new procedures require Issuers to submit detailed cover letters, numerous corporate records and completed standardized forms. In addition, Issuers must now document and evidence proper corporate procedures and maintain historical books and records in their entirety. Although FINRA is still refining its own internal review process, which will help expedite properly submitted documentation, the new procedures will ultimately benefit legitimate corporate management and deter those who attempt to take action without proper authority.

The new OTC Equity Issuer Notification Form requires detailed information regarding the Company, specifically, its name and address, all contact information, details regarding its securities as well as complete transfer agent information. In addition, all officers must be listed and copies of properly executed board resolutions and meeting minutes appointing each officer must be provided.

Name Changes and Stock Splits

The new OTC Equity Name Change/Stock Split Request Form requires detailed information regarding the proposed corporate action and sets forth the supporting documentation which must be provided. In particular, an Issuer must provide a cover letter that provides a complete and detailed corporate history of the company including an explanation for every corporate change that ever occurred. These corporate changes include, but are not limited to; every amendment filed with the state of incorporation, changes in control, and name changes and stock splits, from its date of inception to the present date.

In order to fulfill this requirement, Issuer’s must possess all documents that have been filed with its state of incorporation and any successor states if there has been a change in domicile. Moreover, an Issuer must
be prepared to provide backup documents to evidence that historical changes (such as board and shareholder consents and meeting minutes) were executed properly.

Reverse Mergers and Required Documentation

In a transaction involving two entities such as a reverse merger or acquisition, Issuers must provide relevant documentation regarding the proposed change, including board and shareholder consents and amendments filed with the state. Issuers must also provide an opinion letter from an attorney licensed in the relevant state opining that the entity in question is the same corporate entity as the public entity and that the transaction is otherwise legal.

Simply stated, following a merger or change of domicile from Florida to Delaware, an issuer would be required to provide opinions from attorneys licensed in both Florida and Delaware opining that the merged entity is the same public company and that the transaction was legal in both states.

In many cases the documents provided by the Issuer must be executed and notarized.

Another common request is for a letter from the transfer agent confirming that they have had sole and continuous custody and control over the company’s shareholder records.

FINRA Notifications

All of the above documents and information must be provided by each and every issuer engaging in corporate action which requires FINRA notification. In addition, upon review, and at the option of FINRA, additional information may be requested. A common additional request is for the issuer to provide copies of all resignations from prior board members.

Lastly, if there has been a change of transfer agent, transfer agent notifications must be provided by both the current and former transfer agent in order to once again establish an uninterrupted chain of control over the Company’s shareholder records. This requirement also ensures that the Company shareholder records have not been altered in any way.

The Need for Corporate Counsel

Some Issuers perceive the new FINRA requirements to be cumbersome and needlessly expensive to comply with. These same Issuers are also dismayed by the additional time it now takes to have a submittal reviewed by FINRA. However, as a whole, these new rules are appropriate and necessary. They merely require public entities to maintain proper and complete books and records and to follow state corporate law regarding board and shareholder changes and consents; practices the Issuer should be adhering to already.

Obviously, the aforementioned FINRA requirements make the ongoing involvement and advice of securities legal counsel all the more necessary.

Attorney Laura Anthony is a Florida securities attorney and the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The Florida corporate and securities attorneys of Legal & Compliance offer specialized legal services to small and mid-size private and public (OTCBB) companies, entrepreneurs, and business professionals throughout the country. Contact us today for a FREE consultation!