A.       The New “Emerging Growth Company” Category

The JOBS Act will create a new category of companies defined as “Emerging Growth Companies” (EGC).  An EGC will be defined as a company with annual gross revenues of less than $1 billion, that has been public and reporting for a minimum of five years and whose non-affiliated public float is valued at less than $700 million.  EGC’s will have reduced requirements associated with initial public offerings (IPO’s) and ongoing reporting requirements.  For many purposes, EGC’s will be allowed to use the less stringent reporting requirements now available for small public companies, defined as those with less than $75 million in revenues.

In particular, (i) EGC’s will only need to provide two years of audited financial statements instead of the now required three years; (ii) EGC’s can report executive compensation as a small business and will not be required to obtain shareholder approval for executive officer compensation; (iii) no internal control over financial reporting audit requirements; (iv) relief from compliance with new US GAAP accounting requirements; (v) confidential treatment of IPO filing documents until just 21 days prior to commencing a road show; (vi) elimination of restrictions on publishing analyst research and communications while IPO’s are underway.

B.        Amendments to Regulation A

The JOBS Act will increase the offering limit under Regulation A from $5million to $50 million and allow solicitation in association with a Regulation A offering.  A Regulation A offering involves the filing of a short form registration statement with the SEC, results in freely tradeable (unrestricted securities), but does not result in public reporting requirements.  That is, companies will now be able to use Regulation A to complete large private offerings, and then investors in the Regulation A offering will immediately be able to sell or transfer their interests using private company market places (PCMP’s).  A new public/private trading platform if you will.

And – my favorite:

C.        Crowdfunding

The following is a summary of the new crowdfunding rules:

(i)            Issuers are limited to raising no more than $1 million in any 12 month period (like the current Rule 504 exemption)

(ii)           Each investor is limited to the greater of $2,000 or 5% of their annual income if such income is $100,000 or less; or $100,000 or 10% of annual income for investors with an annual income in excess of $100,000

(iii)          Issuers must file a report with the SEC and provide investors with the report disclosing (a) financial statements (unaudited for offerings less than $500,000 and audited for over $500,000); (b) business description; (c) intended use of proceeds; (d) offering amount and term of offering; (e) pricing and method used to determine pricing; (f) management and bios of same; and (g) current ownership/capitalization

(iv)         Issuers will be required to file limited annual financial statements for a period after the offering;

(v)          offerings will need to be conducted through licensed intermediaries; intermediaries do not need to licensed broker dealers but will be required to be members of an SRO such as the new Crowdfund Intermediary Regulatory Association (CFIRA)

(vi)         advertising will be allowed in a limited fashion such as a tombstone ad directing investors to the licensed intermediary;

(vii)        securities sold will be subject to holding periods and resale restrictions

(viii)       only available to U.S. organized entities;

(ix)         only available to non-reporting entities;

(x)          pre-empts state law such as Rule 506 does now;

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (”Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (”Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

Terms of Payment

A promissory note may contain other terms such as the right of the promisee to order payment be made to another person, security or collateral, conversion into stock or other equity, penalties for late payments, a provision for attorney’s fees and costs if there is a legal action to collect, the right to collect payment in full upon certain facts (such as the sale of collateral or a default in the note obligations.

There are legal limitations to the amount of interest which may be charged. When the amount due on the note, including interest and penalties (if any) is paid, the note must be cancelled and surrendered to the person(s) who signed it. The requirements of how a promissory note must be signed are governed by state law and vary from state to state. Some states require that a promissory note by witnessed, others require that it be notarized and some do not require witnessing or a notary.  Notes often contain enforcement provisions, such as notice requirements, jurisdiction and venue.

The note is signed by the person borrowing the money. The note is then kept by the person lending the money as evidence of the loan and the repayment agreement (with a copy usually provided to the borrower).  It is recommended that the debtor sign in blue ink so that there can be no confusion as to which document is the original (and thus enforceable) note.

Liens as Security

In some cases, a promissory note is used when a loan is made for the purchase of real property. When this type of loan is made, the person lending the money often takes a mortgage on the property. That is, the borrower agrees (through a written document that is recorded with the local recorder’s office) that the lender has an interest or lien on the property until such time as the loan is repaid in full. If the loan is not paid in full, the mortgage holder can file a lawsuit, usually called a foreclosure, seeking to have the property sold and the proceeds generated from that sale paid to the lender to satisfy or pay off the loan.

In cases where a loan is used for the purchase of specific personal property (i.e. property that is not land or real estate), a similar type of document can be used to secure the loan or to specify collateral for the repayment of the loan. A security interest can be obtained in the property that is purchased with the borrowed money – this is referred to as a purchase money security interest. If property other than the property purchased with the money is offered as collateral or security on the loan, this type of security is referred to as a non-purchase money security interest. The document that identifies these types of security interest is called a Security Agreement. This document sets forth the details on the type of collateral, location, and how the collateral is handled should the borrower not repay the loan as agreed.

Personal Guarantees

Some promissory notes provide for personal guarantees – if the person borrowing the money is a corporation or is an individual that does not appear to have a solid financial base, another individual will be required to sign the guarantee, thereby promising the lender to pay the loan if the borrower does not. These provisions are enforceable and will bind the person signing the guarantee in the same manner as the person who signed the note.

Unless specifically prohibited in the language of the note, a promissory note is assignable by the lender.  That is, the lender can sell or assign the note to a third party who the borrower must then repay.  However, a promissory note is never assignable by the borrower, without the express written consent and approval of the lender.  Moreover, convertible promissory notes are generally not assignable unless the third party meets specific criteria.

This is because a convertible promissory note is generally an investment decision (i.e. it can be converted into equity) and the exemption relied upon by the borrower may be limited to the lender meeting certain eligibility.  For example, generally lenders in a convertible promissory note must be accredited and not be disqualified from participating in stock offerings, such as by having a penny stock bar.

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (”Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (”Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

Balancing Common and Preferred Shares

A common question I am asked by directors is how to balance the interest of two competing classes of stock (such as common and preferred). In such a case, the entire fairness standard of reviewing a corporate transaction (discussed in last blog) will not automatically be invoked, but first the court will utilize the business judgment rule. Accordingly, a director who is not conflicted and who otherwise takes all measures required (in-depth involvement in the process, review of all documents, advice of outside professionals, seeking highest price for all classes of stock) will be protected from liability.

Directors’ Financial Motivation

Delaware courts have emphasized that involvement by disinterested, independent directors increases the probability that a board’s decisions will receive the benefits of the business judgment rule and helps a board justify its action under the more stringent standards of review such as the entire fairness standard. Independence is determined by all the facts and circumstances, however, a director is definitely not independent where they have a personal financial interest in the decision or if they have domination or motive other than the merits of the transaction. Simply stated, the greater the degree of independence the greater the protection. Many companies hire special committees of outside professionals to review and recommend course of action on a transaction as added protection.

Duty of Loyalty

In some circumstances the duty of loyalty requires that a director make a business opportunity available to the corporation before the director may pursue the opportunity personally. Whether such an opportunity must first be offered to the corporation will depend on the following factors: (i) the circumstances in which the director became aware of the opportunity; (ii) the significance of the opportunity to the corporation and the degree of interest of the corporation in the opportunity; (iii) whether the opportunity relates to the corporation’s existing or contemplated business; and (iv) whether there is a reasonable basis for the corporation to expect that the director should make the opportunity available to the corporation.

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (”Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (”Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

Duty of Loyalty

The duty of loyalty demands that there be no conflict between the director’s duty to the company and their own self-interest. A director breaches that duty when he appropriates a corporate asset or opportunity or uses his corporate office to promote, advance or effectuate a transaction between the corporation and himself or a related party which isn’t entirely fair to the corporation.

Business Judgment Rule

The business judgment rule will not protect a director where there is a violation of the duty of loyalty. Moreover, a director cannot rely on either exculpation or indemnification for a violation of the duty of loyalty but they may be able to rely on these protections for a violation of the duty of care, or even the sub duty of good faith. Accordingly in McPadden v. Sidhu, 964 A.2d 1262 (Del. Ch. 2008) the court found gross negligence but not a breach of the duty of loyalty where the director accepted a price at the lowest end of the valuation range, did not ensure a thorough sale process and was not actively involved in negotiations and other aspect of the sale. As there was no violation of the duty of loyalty, the case was dismissed in reliance on an exculpation provision in the Certificate of Incorporation.

Delaware General Corporate Law

Some states, including Delaware, statutorily codify the duty of loyalty, or at least the impact on certain transactions. Delaware’s General Corporations Law Section 144 provides that a contract or transaction in which a director has interest is not void or voidable if: (i) a director discloses any personal interest in a timely matter; (ii) a majority of the shareholders approve the transaction after being aware of the director’s involvement; or (iii) the transaction is entirely fair to the corporation and was approved by the disinterested board members.

The third element listed by the Delaware statute has become the crux of review by courts. That is, where a director is interested, the transaction must be entirely fair to the corporation (not just the part dealing with the director). In determining whether a transaction is fair, courts consider both the process (i.e. fair dealing) and the price of the transaction. Moreover, courts looks at all aspects of the transaction and the transaction as a whole in determining fairness, not just the portion or portions of the transaction involving a conflict with the director. The entire fairness standard can be a difficult hurdle and is often used by minority shareholders to challenge a transaction where there is a potential breach of loyalty and where such minority shareholders do not think the transaction is fair to them or where controlling shareholders have received a premium.

Informing Shareholders

To protect a transaction involving an interested director, it is vital that all directors take a very active role in the merger or acquisition transaction; that the interested director inform both the directors, and ultimately shareholders, of the conflict; that the transaction resemble an arm’s length transaction; that it be entirely fair; that negotiations are diligent and active and that the advice and counsel of independent third parties, including attorneys and accountants, be actively sought

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (”Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (”Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

Indemnification of Corporate Officers

Many states’ corporate laws allow entities to include provisions in their corporate charters allowing for the exculpation and/or indemnification of directors. Exculpation refers to a complete elimination of liability whereas indemnification allows for the reimbursement of expenses incurred by an officer or director.

Delaware, for example, allows for the inclusion of a provision in the certificate of incorporation eliminating personal liability for directors in stockholder actions for breaches of fiduciary duty, except for breaches of the duty of loyalty that result in personal benefit for the director to the detriment of the shareholders. Indemnification generally is only available where the director has acted in good faith. Exculpation is generally only available to directors whereas indemnification is available to both officers and directors.

Operating In Good Faith

To demonstrate that a director acted in good faith, the director must meet the same general test of showing that they met their duties of care, loyalty and disclosure. The best way to do this is to be fully informed and to participate in the process, whether that process involves a merger or acquisition or some other corporate transaction. Courts will consider facts such as attendance at meetings; the number and frequency of meetings; knowledge of the subject matter; time spent deliberating; advice and counsel sought by third party experts; requests for information from management; requests for and review of documents and contracts).

Fiduciary Duty and Best Efforts

In advising the board of directors, counsel should stress that the director be actively involved in the business decision making process, review the documents and files, ask questions and become fully informed. The higher the level of diligence, the greater the level of protection.

It is not important whether the decision ultimately turns out to be good or bad. Hindsight is 20/20. The significant factor, in seeking protection (via the business judgment rule, and through exculpation and indemnification) is that best efforts are made. Of course, directors should be careful to document their diligence.

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (”Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (”Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

Mergers and Acquisitions

However, in certain instances, such as in a merger and acquisition transaction, where a board may have a conflict of interest (i.e. get the most money for the corporation and its shareholders vs. getting the most for themselves via either cash or job security), the board of directors actions face a higher level of scrutiny. This is referred to as “enhanced scrutiny business judgment rule.” The same standards apply to officers of a corporation.

Fiduciary Duties

A director’s fiduciary duties to a corporation include the duty of care, duty of loyalty and a duty of disclosure. In short the duty of care requires the director to perform their duty with the same care a reasonable person would use, to further the best interest of the corporation and to exercise good faith, under the facts and circumstances of that particular corporation. The duty of loyalty requires that there be no conflict between duty and self interest. The duty of disclosure requires the director to provide complete and materially accurate information to a corporation.

Determining Negligence

In the seminal case of Smith vs. Van Gorkom, 488 A.2d 858 (Del. 1985), the Court found that the board was grossly negligent where it approved the sale of the company after only a few hours of deliberation, failed to inform itself of the Chairman’s role and benefits in the sale and did not seek the advice of outside counsel. Similarly in Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993) found that the board was negligent in approving the sale of a company where it did not search for real alternatives, did not attempt to find a better offer and had insufficient knowledge of the terms of the proposed merger agreement.

On the other hand, the court in In re CompuCom Sys., Inc. Shareholders Litigation., 2005 Del. Ch. LEXIS 145 (Del. Ch. Sept. 29, 2005) upheld the board of directors business judgment even though the transaction price per share was less than market value as the board showed it was adequately informed, acted rationally and sought better deals.

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (”Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (”Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

The advantages of an IPO include:

• Access to capital
• Liquidity of stock
• Public image and prestige; and
• Ability to attract and retain better personnel

The disadvantages of an IPO include:

• Expense – both of the initial transaction and ongoing compliance;
• Public disclosure of business information – public companies are required to be transparent which can give private competitors an edge;
• Limitations on long term strategic decisions
• Civil and criminal liability of executive officers and directors; and
• Takeover danger

The alternatives to an IPO for an Issuer seeking capital include:

• A Section 4(2) and/or Regulation D private offering;
• Section 3(11) Intrastate offering;
• Regulation A registered offering;
• Other private financing such as a venture capital or angel investor; or
• Conventional financing such as bank loans and receivable factoring.

Alternatives to an IPO for an Issuer seeking to go public include:

• Merger or reverse merger with a public shell

Securities Attorney Laura Anthony

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!

FINRA and the OTCBB

FINRA (the Financial Industry National Regulatory Authority) operates the OTC Bulletin Board and processes corporate actions for changes such as splits and name changes. FINRA also issues trading symbols to over the counter (non-exchange) traded issuers and maintains a symbols database for issuers. When processing by FINRA of a corporate action is complete, FINRA notifies the OTC marketplace of such changes and actions, such as repricing securities following a forward or reverse split, or issuing a new trading symbol following a name change or merger.

Historically, FINRA’s role has been largely ministerial with limited jurisdiction to impose informational or other requirements, and no power to reject requested changes. However, the SEC began to express concern that certain parties were using FINRA to assist in fraudulent activities, such as usurping the corporate identity of publicly traded entities by either reinstating an entity with no authority or creating new entities with the same name as the public entity. Accordingly, Rule 6490 was created.

FINRA and Issuer Actions

The Rule codifies FINRA’s authority to conduct in-depth reviews of company related actions and allows the staff discretion not to process such actions where the information or forms are incomplete or when certain indicators of potential fraud exist. The staff now has broad discretion to ask for additional documents and evidence to support and verify the accuracy of submitted information.

Factors that may be considered by FINRA to deny an application for a change are limited to: (1) FINRA staff reasonably believes the forms and provided documentation is not complete or accurate; (2) a reporting issuer is not current with its reporting obligations; (3) FINRA has actual knowledge that the Company or Company related parties are the subject of a pending investigation by a regulatory body or have been adjudicated against adversely; (4) a government authority or regulatory has informed FINRA that the company related action may be potentially related to fraud or pose a threat to public investors; or (5) there is significant uncertainty in the settlement clearance process for that security.

FINRA and Processing Fees

In addition, the new Rule allows FINRA to charge fees to issuers for processing these corporate actions. In furtherance of the Rule and its new duties, FINRA has created certain forms and information requirements for Issuers to complete and submit. In addition to information forms which must be completed by the Issuers, FINRA now requires notarized and verified background corporate records, board and shareholder resolutions, proof of change of control (including resignations and appointments for all changes in officers and directors) and attorney opinion letters. All requests must be accompanies with the newly imposed fees. The new FINRA fees range from $200 for a timely notice to $5,000 for a late notice (with $1,000 and $2,000 in between fees), and a $4,000 fee to appeal an adverse decision.

Securities Attorney Laura Anthony

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!

Three Levels of Reporting

The new www.otcmarkets.com divides issuers into three (3) levels: OTCQX; OTCQB and PinkSheets. The new website also provides quotes for the OTCBB but it seems this is just more as a comfort or segue until the industry gets used to the idea that the “bulletin board” is no more. The OTCBB has no particular listing or quotation requirements other than that the issuer be subject to the reporting requirements of the Securities Exchange Act of 1934, and be current in their reports. As noted below this is the exact same requirement for issuers on the OTCQB.

OTCQX

Issuers on the OTCQX must be fully reporting and current in their reporting obligations with the SEC and also undergo a quality review by industry professionals. Issuers on the OTCQB must be fully reporting and current in their reporting obligations with the SEC but do not undergo additional quality review. Issuers on the PinkSheets are not required to be reporting with the SEC. However, such issuers are then further qualified based on the level of voluntary information provided to the www.otcmarkets.com. Issuers with no information are denoted by a skull and crossbones, where Issuers with information analogous to that contained in a 15c2-11 application, are denoted with a “current information” symbol and those in between by a “limited information” symbol.

SEC and FINRA Reporting Requirements

Although the entire over the counter market is regulated by the SEC and FINRA, both www.otcmarkets.com and www.otcbb.com are now privately owned and merely serve as quotation mediums. Moreover, www.otcmarkets.com is more user friendly and up to date than www.otcbb.com. In fact, FINRA just sold www.otcbb.com and its trademark to an independent third party, in an effort to remove itself from operating the over the counter market to overseeing the market and being its primary regulator. So if all over the counter quotes can be found at www.otcmarkets.com and companies trading on the OTCQB have the exact same standards as the OTCBB, and FINRA is no longer directly associated with the OTCBB; where does that leave the OTCBB? I believe as an acronym which will soon find itself antiquated.

Securities Attorney Laura Anthony

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!

Increased Net Worth Requirements

This change effectively increases the net worth requirements for investors, whose largest asset is often their primary residence. Although the SEC has not yet issued any guidance or other information on the change, it is anticipated that investors will also be allowed to exclude the value of any mortgages or other debt secured by the primary residence in calculating their net worth.

Regulation D

Under Regulation D of the Securities Act of 1933, the disclosure requirements for offerings made strictly to accredited investors are less comprehensive, and accordingly less expensive, than offerings which include non-accredited investors. Moreover, the increased disclosure requirements are applicable if even one non-accredited investor is offered the investment, regardless of whether they subsequent accept the offer and become an investor. In addition to detailed disclosure requirements related to the business, its financial history and the control persons background, offerings made to non-accredited investors must include financial statements, which in most cases must be audited.

Dodd-Frank Act

In addition, the Dodd-Frank Act has eliminated many exemptions from the requirement to be registered as a financial advisor. In particular, the previous “private advisor” exemption has been eliminated. The private advisor exemption allowed advisors to avoid SEC registration if they did not advise a business development company, had fewer than fifteen (15) clients and did not hold themselves out to the public as an investment advisor. The elimination of the private advisor exemption becomes effective July 21, 2011.

Securities Attorney Laura Anthony

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!