On October 11, 2017, the Securities and Exchange Commission (SEC) published for comment a proposal by NASDAQ Stock Market LLC (Nasdaq) to modify its initial and continued listing requirements for special purpose acquisition companies (SPACs).
This week we highlight Professor John Coffee Jr.’s article “Hobson’s CHOICE: The Financial CHOICE Act of 2017 and the Future of SEC Administrative Enforcement”, analyzing the Financial CHOICE Act and in particular its impact on SEC enforcement. This post was published in the Columbia law school’s blog on corporations and the capital markets.
On August 2, 2016, the Internal Revenue Service and the Treasury Department issued proposed regulations intended to substantially limit the use of discounts in valuing intra-family transfers of interests in family-controlled entities. If finalized in their current form, the proposed regulations would disallow certain discounts for lack of control (minority interests) and lack of marketability (illiquid interests) that are commonly applied to lower the value of such transferred interests for gift, estate and generation-skipping transfer tax purposes.
When Mark Zuckerberg recently announced that he was giving away up to 99 percent of his Facebook shares (valued at approximately $45 billion), he was severely criticized for it. Zuckerberg and his wife created the Chan Zuckerberg Initiative, a Delaware-based limited liability company (LLC) dedicated to “advancing human potential and promoting equality.” Zuckerberg’s pledge to donate his Facebook shares to his charitable LLC has been characterized as an empty promise because, critics say, he could “take it back” at any time. These critics are not faulting Zuckerberg for his desire to “do good”; it is the manner by which he is attempting to accomplish this good deed that has raised eyebrows.
Her Majesty’s Revenue & Customs (HMRC) has now published its response to the U.K. Supreme Court’s recent judgment in Anson v HMRC. The response confirms that HMRC will continue its existing practice of treating U.S. limited liability companies (LLCs) as companies for U.K. tax purposes.
Amendments to the DGCL
Several significant amendments to the Delaware General Corporation Law (DGCL) were signed into law on June 24, 2015, and will go into effect on August 1, 2015. Most significantly, these amendments:
- Prohibit fee-shifting – After the revised Sections 102 and 109 take effect, any provisions in the certificates of incorporation or bylaws of Delaware corporations that would seek to “fee shift,” or impose liability on a stockholder for attorneys’ fees or expenses of the corporation (or anyone else) in connection with “internal corporate claims” (e.g., breaches of fiduciary duties) will be prohibited.1
- Authorize Delaware forum selection clauses – In the new Section 115, the DGCL (1) expressly authorizes the inclusion of Delaware exclusive forum provisions for internal corporate claims in the certificates of incorporation or bylaws of Delaware corporations and (2) prohibits provisions in such certificates of incorporation or bylaws that would disallow bringing internal corporate claims in Delaware.2
The popularity and number of co-investments has been on the rise. Co-investment opportunities are seen by investors as more unique, lower-cost alternatives to typical private equity fund investments. For fund sponsors, offering co-investment rights is a way to differentiate themselves from other sponsors. Both co-investors and sponsors benefit from the relationship-building that typically occurs in connection with co-investments.
With any co-investment, the first thing that must be decided is the economic terms of the co-investment. Typically (but not always), co-investments are on a no-fee, no-carry basis. Once those basic economic terms have been resolved, a structure for the co-investment must be determined. Both direct investments into a sponsor’s acquisition vehicle and investments into one or more sponsor-controlled limited partnerships or limited liability companies that, in turn, invest into the sponsor’s acquisition vehicle are popular alternatives, with each alternative having its own set of issues.
The new 114th Congress has now convened and speculation is widespread as to whether tax reform can be successfully pursued in 2015. The successful 1986 Tax Reform Act navigated its way through a politically divided Congress a full generation ago—demanding the very best of our Congress and president, and requiring political leadership, bipartisan cooperation and substantive compromise—the essential hallmarks of the 1986 Act—over a sustained two-year period. Make no mistake about it—to succeed, nothing short of a determined bipartisan effort and shared commitment will be required again.
At present, the fundamental building blocks for a successful tax reform effort are not in place. Those fundamentals include whether tax reform should be structured comprehensively to include both individual and corporate reform (the “1986 Act model”) or whether corporate tax reform should proceed separately and go first. As part of this latter consideration, a fundamental divide must be resolved between those favoring reform for public C corporations and those favoring more expansive “business” tax reform, including sole proprietors and “pass-through” business entities including partnerships, Subchapter S corporations, master limited partnerships (MLPs) and limited liability companies. Finally, a fundamental difference of opinion must be bridged between congressional Republicans who favor structuring tax reform to be “revenue neutral” and President Obama and congressional Democrats who favor raising some additional revenues from tax reform to be utilized for deficit reduction or infrastructure investment. This latter difference extends to the issue of whether “dynamic” scoring or conventional budget scorekeeping conventions should be used to measure the revenue effects of tax reform whatever its underlying structure.