Current News and Events from the State Bar of California Business Law Section.
Here is your January eNews from the Business Law Section (“BLS”) :
The BLS is looking for attorneys who want to get involved in standing committees. Members of committees review and propose legislation, draft eBulletins, Business Law News (BLN) articles, and practice guides, and speak at live and webinar programs. These are working committees that meet between 5 and 10 times per year, usually by telephone. Committee members develop valuable personal and business relations with other practitioners in their respective fields of practice.
Members of the BLS who have been in practice at least five years are eligible to serve on one of 15 BLS committees. Each committee is comprised of 16-30 members, selected for 3-4 year terms. The standing committees are:
Applications for this year will be due on May 1, 2018. To apply for a BLS committee, click here: http://cla.legal/Sections/Business-Law/Standing-Committees/Application
BLS Executive Committee
Members with standing committee experience are eligible to serve on the BLS Executive Committee. Comprised of about 18 members who serve for 3 to 4 years, the Ex Comm. oversees BLS operations, including coordinating publications, legislative activities, programs, and various member services offered by the Section’s 15 standing committees. Ex Comm. meets approximately 10 times per year; three times in person and 7 times via telephone. As with committee service, participation on Ex Comm. offers wonderful leadership and networking opportunities, on occasion leading to lifelong friendships.
Applications for Ex Comm. must be submitted to John Buelter, BLS Section Coordinator, by March 1, 2018. The application form is the same as the form used for standing committee membership (see above).
CLA’s Annual Conference: Save the Date
The first CLA Annual Meeting will be held in San Diego, California, on September 14-15, 2018. The meeting will feature scores of MCLE programs, Section and standing committee meetings, keynote speakers, and networking opportunities. We invite all BLS members to attend this historic first CLA Annual Meeting. It will not disappoint!
BLS Membership—It’s Important
If you are not a member of the BLS, or have yet to return your State Bar dues bill, please consider either joining the BLS or renewing your membership. At $95 per year, the dues are reasonable and the benefits exceptional. As important, you’ll be supporting a new state-wide voluntary association of attorneys with a worthwhile goal --- to improve the legal profession in California. We hope you join the BLS and take advantage of our vast number of opportunities.
Uzzi O. Raanan
Danning, Gill, Diamond & Kollitz, LLP (Los Angeles)
Chair, Business Law Section
The California Lawyers Association (CLA) has now officially launched, shifting oversight of the 16 Sections and the California Young Lawyers Association (CYLA) from the State Bar of California to a voluntary organization, as required by legislation passed in 2017. With nearly 100,000 members, the CLA is the nation’s second-largest professional association for attorneys, smaller only than the American Bar Association. Its first President Heather L. Rosing, first Vice-President Emilio Varanini, Board of Directors and officers began the work of the organization’s inaugural year this week.
“With the launch of CLA, we are on an exciting path toward advancing the legal profession in California,” said Rosing, the first President of the organization. “From day one, we offer a wealth of benefits to practicing California lawyers, and we anticipate adding many, many more. Our goal is to become an indispensable legal resource for the legal community and a tireless advocate for our lawyers and our courts.”
CLA will continue to build on the mission of the Sections, providing educational and networking opportunities, including in-person events, webinars, and publications, for members of the 16 Sections—Antitrust, Business Law, Criminal Law, Environmental Law, Trust and Estates, Family Law, Intellectual Property, International, Labor & Employment, Law Practice Management, Litigation, Public Law, Real Property, Solo and Small Firms, Taxation, and Workers’ Comp—and CYLA. Having been freed from the limitations inherent in being part of a regulatory agency of the State of California, the CLA’s ability to serve and advocate for lawyers, to foster and strengthen ties between lawyers from all practice areas and within and among all segments of society and government is unlimited.
Meeting With CLA Leadership On January 18
The CLA’s just-launched website, www.cla.legal, allows CLA members immediate access to all Section materials as well as a link to join the CLA if you are not already a Section member.
Last year, the State Legislature passed Senate Bill (SB) 36, which allowed for the incorporation of the Sections and CYLA into a private, 501(c)(6) organization. The unanimous vote by the Legislature followed input from the State Bar and Chief Justice of the California Supreme Court.
Governor Jerry Brown signed SB 36 into law in October, initiating the transition from the government agency. The State Bar will continue to operate as a regulatory entity, overseeing California attorney admission, licensing, and discipline.
“The California Lawyers Association is an exciting new chapter for our Section and CLA members generally. The new organization allows us to be more responsive to member needs, to provide a broader range of cost-effective products and services, and to conduct focused advocacy to help ensure our members’ professional success,” said Matthew J. Spark, Chair of the Intellectual Property Law Section. “We look forward to providing an enhanced level of service and community to the membership.”
“Scores of our Section volunteers have worked incredibly hard this past year along with leaders and volunteers of the other Sections to emerge as an integral component of the CLA, soon to be known within and outside our state borders as the bar association for all California lawyers,” said Jim Hill, Chair of the new CLA Board. “We will continue to make excellence our standard. We will become only stronger as part of the CLA.”
Under the new organization, each of the 16 Sections and CYLA has elected one delegate to the CLA Board, ensuring equal representation. State Bar staff and the Council of State Bar Sections—the leadership body through which all Sections previously interacted—oversaw the transition to the nonprofit organization from 2017 to 2018.
Membership in the Sections is automatically transferred to CLA and will remain intact and renewable, as long as members pay annual dues to the State Bar and Section membership fees to the CLA (through the State Bar).
For more information on the mission of the California Lawyers Association or how to join, please visit www.cla.legal
FAQ Regarding the California Lawyers Association (CLA)
I'M ALREADY A SECTION MEMBER, SO HOW DO I BECOME A MEMBER OF THE CLA?
Your current membership will automatically transfer to the CLA until it expires at the end of the current bar year. Make sure to renew your membership in one or more Sections on the State Bar dues statement as usual, or log into My State Bar Profile. You should have received your annual dues statement from the State Bar on or after December 1, 2017.
HOW DO I JOIN A SECTION?
Simply log into your current My State Bar Profile and join a Section. You can also join a new Section (and renew current Section membership) when paying your annual State Bar dues. The State Bar began emailing out the annual dues statements on December 1, 2017.
WILL MY SECTION DUES INCREASE DUE TO THE SEPARATION?
No. Section dues will remain the same through 2018. Log into My State Bar Profile to view your current Section dues and renew today!
WILL MY STATE BAR LICENSING FEE INCREASE DUE TO THE SEPARATION?
No. The State Bar’s licensing fee is set by the California Legislature and is expected to remain the same for 2018.
WILL CLA OFFER THE SAME EDUCATIONAL PUBLICATIONS, PROGRAMS, EVENTS AND CONFERENCES THAT ARE OFFERED BY THE SECTIONS NOW?
Yes, but as a voluntary bar association, the CLA will have more flexibility and fewer restrictions, enabling the Sections to expand, innovate and offer Section members new and innovative publications, programming and other events.
AFTER SEPARATION, WILL THE STATE BAR WEBSITE STILL REPORT THE STATUS OF MY SECTION MEMBERSHIP AS IT DOES NOW?
Yes. You may verify your Section(s) membership by logging into your profile via the new CLA website.
Officers: Officer elections were held on Thursday, January 18, in San Francisco. We are very pleased to announce that the following officers were elected:
CLA offers a particular thanks to all of our volunteers who worked so tirelessly in the transition period leading up the January 1st launch of the organization, including Interim Chair Perry Segal.
CLA Staff: We are also pleased to further announce our talented CLA staff. Attached is a directory for your convenience. Pam Wilson is our Interim Executive Director and Tricia Horan is our Director of Operations. Saul Bercovitch is joining us shortly as our new Director of Governmental Affairs. Our staff is truly terrific, but we beg your patience as we get organized and further structure the staff support for our various projects, initiatives, programs, and operational and technology needs.
Annual Meeting: CLA is pleased to announce that we are reviving the Annual Meeting this year, which will be known as the CLA Annual Meeting going forward. At its peak, when hosted through the State Bar, the Annual Meeting attracted over 4,000 attendees. We are extremely fortunate to have Pam, Tricia, and their staff assisting us, as they are the undisputed Annual Meeting Experts. This year, we will be in San Diego, at the Sheraton San Diego Hotel & Marina September 14-15, and we anticipate that many of the Sections will be holding their meetings and educational programming in conjunction with this Annual Meeting. We are already working with external partners, such as the California Women Lawyers, Conference of California Bar Associations (formally known as the Conference of Delegates), and the California Judges Association, to explore joint programming and other collaborations.
Meeting the Sections: The Executive Leadership Team would love to have the opportunity to meet the Section leadership. Please let Heather (email@example.com) and Emilio (Emilio.Varanini@doj.ca.gov) know if they can attend one of your upcoming telephonic or in person meetings, to discuss the initial stages of developing CLA. We are excited to build enthusiasm for CLA and its growth and potential.
Applications for Committees: We are excited to announce the creation of a group of (1) Board Advisory Committees and (2) Presidential/Executive Committees. We are soliciting applications and suggestions for members and leaders for all of the Board Advisory Committees and Presidential/Executive Committees. Applications can come from the Sections or from individuals. The applications should include the name, phone number, email address, and brief description of qualifications and interest of the applicant. We are seeking a pool of diverse applicants, in terms of Section affiliation, practice areas, gender, race, national origin, culture, age, sexual orientation, geographic location, and otherwise. Please submit all applications by February 12th to Elizabeth.Freestone@CLA.Legal.
Marketing and Communication
Executive Director Selection
General Counsel and Legal Affairs Selection
Many of you are already familiar with CMCP and our mission of supporting minority business attorneys. For all, I welcome you to engage with CMCP and add your ideas and participation as we develop opportunities for BLS and CMCP to collaborate.
This column is one component in what I hope will be an ongoing and mutually beneficial relationship for our organizations and memberships.
CMCP is California’s leading diversity organization for minority business lawyers. Our membership consists of more than 200 law firms and legal departments. CMCP’s mission is to promote diversity in the legal profession by providing attorneys of color with access and opportunity for business and professional development. At its core that means creating programs and events that bring together attorneys of diverse backgrounds from law firms and legal departments for networking, professional and business development and continuing legal education. It also means providing resources, including our quarterly Newsletter and weekly Bulletins, that inform our readership on diversity-related and law practice related information and provide a platform for showcasing minority talent.
State of diversity and the need for CMCP
In the face of the legal industry’s slow pace of change – hailed as the least diverse profession in the United States – diversity organizations like CMCP play an essential role in advancing diversity as a business advantage and necessity. Since its founding in 1989 CMCP has strived to directly address the steep discrepancy in numbers of racial and ethnic minorities in the legal profession. While some progress has been made, changes in percentages of minorities in law firms has been incremental at best and especially limited for some populations: Per statistics from National Association for Law Placement, Inc. (NALP) the representation of minority lawyers as a whole in 2017 was 15.2%, and the number of minority partners in major firms in 2017 just 8.4%. Women constituted 35% of lawyers at law firms, and the number of minority women partners only 2.9%.
While numbers of Asian American associates have grown, that growth is not reflected in other racial groups, and Asian Americans still face significant barriers in becoming partners, firm leaders and relationship managers. After a period of five consecutive years of decline, the number of African American lawyers is still below 5%.
Changing these dismal numbers calls for a concerted effort, and at least some parts of the industry have responded: law firms have engaged in innovative initiatives to attract, retain and promote diverse talent, and corporate law departments have been increasingly vocal and assertive in calling on law firms to staff their matters with diverse attorneys. At a recent CMCP program the General Counsel and Chief Legal Officers of the Golden State Warriors, HP Inc., PayPal and Kaiser Foundation came together to state powerfully the importance to them of diversifying the profession and the measures they take to diversify the lawyers servicing their organizations. Providing that platform for committed leaders is a critical part of CMCP’s identity. Assisting in the professional development of diverse attorneys to increase their preparedness to counsel clients and to make them more visible for development and leadership opportunities is likewise a key function for CMCP.
Raising awareness and building resources for diversity and inclusion
Changing the face of the profession means changing the defaults that drive decisions of which attorneys to develop and present as experts, speakers, writers and trusted advisors. Intentionality in looking at development and promotion of an organization’s attorneys as an opportunity to expand the ranks and pipeline of diverse attorneys at the highest levels is needed. Providing diverse panels of attorneys for speaking and writing, not just about diversity, but on substantive legal issues doesn’t just help the optics of the profession, it helps change the assumptions about what experts in the field look like and helps create a culturally richer and more inclusive profession.
CMCP’s role in this is to provide these opportunities – through our annual conferences and numerous programs between conferences, and also by increasing the visibility of talented lawyers.
CMCP has built a strong track record in supporting minority attorneys and is poised for expansion of its activities and impact. We want more lawyers, from recent admits to C-suite leaders, to be aware and be involved in our undertaking.
The CMCP 2017 Annual Business Conference was a great event, bringing together more than 500 attorneys (75% at firms, 25% in-house) for CLEs on a wide range of topics including the Federal Rules of Civil Procedure, the path to the judiciary, managing multigenerational workplaces, networking tips, alternative currencies and issues arising from the legalization of marijuana.
CMCP produced 23 programs in 2017 outside of the annual conference in five geographic areas: San Francisco, Los Angeles, Silicon Valley, San Diego and Orange County.
The second meeting of the Legal Department Diversity Summit (LDDS) at the annual conference presented an opportunity for dialogue among legal departments on best practices in pushing for a more diverse profession, including managing outside counsel diversity and internal diversity efforts.
The CMCP Ambassadors Council of next generation minority lawyers and leaders took the next steps in its development, adding ten new Ambassadors to reach its full complement of 21 Ambassadors, and working with CMCP to present more programs particularly suitable for up-and-coming attorneys including the “Step Up!” program series on networking and professional development, and the program “Getting to Helpful” addressing pitfalls and opportunities to add value in working with clients.
Goals for 2018 and beyond
2018 will see CMCP to expand its reach and impact in the legal community. Programs are already in the works in multiple locations, including San Francisco, Silicon Valley, Oakland, Orange County and Sacramento. The relationships that have been made and deepened in the past year with national and local bar associations and groups are ripe to be turned in to programs and shared resources for our shared memberships.
We are looking forward to continued development of the LDDS group, and acting as a hub and resource for in-house departments including networking opportunities and educational programs.
Many law firms and legal departments, including large organizations, are seeking guidance and models for success in creating effective diversity committees and employee groups to create more diverse and inclusive workplaces. This provides an opportunity for CMCP to help connect lawyers and organizations, and to help develop best practices, guidelines and other tools for law firms and legal departments in growing internal diversity initiatives.
These ideas, programs and developments all require the support of our members and community – please reach out to us with a willingness to pitch in to come up with new ideas, make connections, advocate for diversity, and the will to make things happen.
We happily anticipate strong partnership with the Business Law Section and other groups in 2018 and beyond as we work together to make a stronger and more inclusive legal profession.
Courtesy of CEB, we are bringing you selected legal developments in areas of California business law that are covered by CEB’s publications. This month’s feature is from the December 2017 update to Forming and Operating California Limited Liability Companies. References are to the book’s section numbers. See CEB’s BLS Landing Page for special discounts for Business Law Section members. The most significant legal developments since the last update include developments in such important topic areas as treatment of job applicants with criminal histories, equal pay, arbitration issues, immigration issues, choice of forum and choice of law clauses, unlawful workplace policies, and union activities.
CEB will be issuing an interim supplement for this title to reflect H.R.1, An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Public Law No: 115-97, commonly known as the “Tax Cuts and Jobs Act,” signed December 22, 2017. The full text of the Act is available here: https://www.congress.gov/bill/115th-congress/house-bill/1/text.
The California Franchise Tax Board (FTB) has published a helpful guide to the tax treatment of limited liability companies (LLCs) with filing information. The guide is available at https://www.ftb.ca.gov/forms/misc/3556.pdf. See §§1.19, 3.57, 5.4, 5.5, 5.18.
The Bipartisan Budget Act of 2015 (Pub L 114–74, 129 Stat 584) enacted new rules that will apply to partnerships (and LLCs) commencing in 2018. The new rules provide for the IRS to audit partnerships and impose the tax on the partnership for the year in which the adjustment is made. The partnership may elect through its partnership representative for the adjustment to apply to the partners of the review year (i.e., the year subject to the audit). Partnerships with no more than 100 partners and having no partners that are themselves a partnership or LLC may elect out of the new rules on an annual basis. See IRC §§6221–6227, 6231–6235, 6241. See also Humphreys & Young, The Current State of the Partnership Audit Rules, 32 CEB Cal Bus L Prac 42 (Spring 2017). The IRS has issued proposed regulations to implement the new partnership audit and adjustment rules. See Int Rev Bull 2017–28 (July 20, 2017). See §§3.38, 5.16A, 9.53, 9.54A.
Although the new IRS partnership audit and adjustment rules are generally effective for tax years beginning on or after January 1, 2018, the new rules allow LLCs to elect to apply the rules to any tax returns filed for tax years beginning on or after November 3, 2015, and before January 1, 2018. If the LLC receives notice from the IRS that it is to be audited for such a tax year, the members should consider whether it would be beneficial to have the new rules apply and, if so, file the election indicated in IRC §6241(g)(4). See §5.16A.
In Swart Enters., Inc. v Franchise Tax Bd. (2017) 7 CA5th 497, the court held that a foreign corporation that was a minority non-managing member of a California LLC was not doing business in California and therefore did not have to pay the $800 minimum franchise tax. The foreign corporation's only connection to California was its 0.2 percent ownership interest in the manager-managed LLC, which was doing business in California. Citing Appeals of Amman & Schmid Finanz AG (1996) 96 SBE 008, 1996 Cal Tax Lexis 62, the court found that the foreign corporation's interest resembled a limited partnership interest. The court noted that the minority member had no interest in specific LLC property and no ability to participate in management or control of the LLC. See §5.6.
In FTB Legal Ruling 2014–01 (July 22, 2014) (available at https://www.ftb.ca.gov/law/rulings/active/lr14_01.pdf), the FTB took the position that all members of an LLC classified as a partnership for tax purposes and doing business in California, whether or not the LLC is manager-managed or member-managed, are deemed to be doing business in California and therefore are subject to California taxation. This position was rejected by the court of appeal in Swart Enters., Inc. v Franchise Tax Board (2017) 7 CA5th 497 (out-of-state corporation owning 0.2 percent ownership interest in manager-managed California LLC, with no right of control over business of LLC, is not doing business in California for purposes of Revenue and Taxation Code). The FTB announced that it will not appeal Swart and that it will "follow the Court of Appeal decision in Swart in situations with the same facts." FTB Notice 2017–01 (Feb. 28, 2017), available at https://www.ftb.ca.gov/law/notices/2017/01.pdf. Accordingly, members of a manager-managed LLC doing business in California, who do not otherwise do business in California or control the business of the LLC, should be treated the same as limited partners of a limited partnership and should not be deemed to be doing business in California. See §14.7B.
In Beachcomber Mgmt. Crystal Cove, LLC v Superior Court (2017) 13 CA5th 1105, the court held that an attorney could represent an LLC's insiders in a derivative lawsuit despite the attorney's prior representation of the LLC itself. The court relied on a line of cases governing successive representation in derivative lawsuits involving closely held companies. In successive representation cases, the purpose of disqualification is to prevent the attorney from using confidential information gained from his or her previous representation, but disqualification is not required if, as in this case, both the entity and the insiders had access to the same information. See also Ontiveros v Constable (2016) 245 CA4th 686 (duty of confidentiality, rather than loyalty, is focus in successive representation of majority shareholder after law firm disqualified as corporation counsel; firm not disqualified because majority shareholder was sole repository of the corporation's confidential information shared with counsel). See §2.4.
Operational and Liability Issues
The Secretary of State is in the process of building out its online system (called Bizfile California) for filing and accessing business forms and other records on file with the Secretary of State. See http://www.sos.ca.gov/business-programs/bizfile/. As discussed in §§7.23A, 7.35, and 13.3–13.3E, it is now possible to prepare and file the required biennial Statement of Information (Limited Liability Company) (Form LLC-12) entirely online. In addition, the public can view online (and download or print) PDFs of the two most recent Statements of Information of record and PDFs of articles of organization (and amendments) for most LLCs. As of December 2017, it is not yet possible to electronically file LLC forms other than the Statement of Information.
Even if the operating agreement imposes limitations on the authority of managers or members, the LLC will be bound by contracts signed by persons without authority if the counterparty has no actual knowledge that the signer has no authority to execute the contract. In Western Surety Co. v La Cumbre Office Partners, LLC (2017) 8 CA5th 125, the court upheld a contract that was signed by a party in the wrong capacity when the other party had no actual knowledge that the signing party lacked authority to sign. The court rejected a claim that the other party was required to perform due diligence to assure that the signing party had authority. As a consequence, if an LLC operating agreement limits the authority of certain managers or members, the other members may wish to assure themselves (either directly or indirectly as may be appropriate in the circumstances) that potential counterparties in contract negotiations are aware of those limitations. See §6.15.
A variation of the alter ego doctrine known as reverse veil piercing (or reverse alter ego) occurs when a third party creditor of an individual shareholder is allowed to pierce the corporate veil in order to reach corporate assets. In Postal Instant Press, Inc. v Kaswa Corp. (2008) 162 CA4th 1510, 1512, the court of appeal rejected the doctrine, but in Curci Invs. v Baldwin (2017) 14 CA5th 214, the court distinguished Postal Instant Press, holding that application of the doctrine to reach assets of a limited liability company was possible under the facts of that case. See §6.25.
For LLCs organized in Delaware, the operating agreement cannot modify or eliminate the covenant of good faith and fair dealing, which is implied in every contract under Delaware law. See Brinkeroff v Texas E. Prods. Pipeline Co., LLC (Del Ch 2010) 96 A2d 370, 390. See §3.95.
Securities Law Matters
As originally promulgated, Regulation D provided safe harbors from the registration requirement of the Securities Act for three different types of transactions, set forth in Rules 504–506 (17 CFR §§230.504–230.506). In SEC Release No. 33–10238 (Oct. 26, 2016), Regulation D was revised, with the revisions becoming effective in 2017. The revisions (1) increased the maximum offering amount under Rule 504 from $1,000,000 to $5,000,000 and (2) repealed Rule 505, which had applied to offerings up to $5,000,000. Rules 500–503 (17 CFR §§230.500–230.503) and 507–508 (17 CFR §§230.507–230.508) set forth conditions applicable to the two exemptions provided by Rules 504 and 506. See §12.25.
Rule 504 (17 CFR §230.504) was revised as described in SEC Release No. 33–10238 (Oct. 26, 2016), with the revisions taking effect on January 20, 2017. As revised, Rule 504 provides a safe harbor from the registration requirements of the Securities Act for transactions with an aggregate offering price not exceeding $5 million, less the aggregate offering price of all other securities sold under Rule 504 or in violation of the Securities Act §5 registration requirement (17 CFR §230.505) within the preceding 12 months. The requirements for integrating and combining different offerings are set forth in Rule 502 (17 CFR §230.502). See §12.26.
Unlike offerings under Rule 506(b) (17 CFR §230.506(b)), offerings under Rule 504 are not subject to the prohibition on advertising contained in Rule 502 and are not deemed to be "restricted securities" under Rule 144 (17 CFR §230.144) if they meet certain state law requirements or are exempt from any state law registration and are sold only to accredited investors. Nor are offerings under Rule 504 subject to the information delivery requirement contained in Rule 502. Issuers seeking to utilize Rule 504 are subject to the "bad actor" disqualifications set forth in Rule 506(d), which Rule 504 references. Like Rule 506, Rule 504 requires the issuer to file a Form D (Notice of Exempt Offering of Securities) electronically with the SEC within 15 days of the first sale of a security as provided in Rule 503. See §§12.26, 12.28.
Rule 505 (17 CFR §230.505) formerly provided a safe harbor from the registration requirements of the Securities Act for transactions with an aggregate offering price not exceeding $5 million. Given the increase in the offering amount under Rule 504, as described in §§12.25–12.26, SEC Release No. 33–10238 (Oct. 26, 2016) repealed Rule 505. See §12.27.
Rule 147 (17 CFR §230.147) provides a nonexclusive safe harbor for intrastate transactions. If its requirements are met, the transaction is deemed exempt under Securities Act §3(a)(11). SEC Release No. 33–10238 (Oct. 26, 2016) made amendments to Rule 147 and created new Rule 147A, each having an effective date of April 20, 2017. See §12.30.
Under Rule 147, issuers will be deemed to comply with §3(a)(11) when offers and sales are made only to persons resident within the same state or territory in which the issuer is resident and doing business. An issuer is resident in the state in which the issuer is organized and has its principal place of business. Rule 147(c) sets forth objective standards for determining that the issuer is doing business within a state. Securities may be offered and sold only to residents of the same state or territory in which the issuer is resident or to persons whom the issuer reasonably believes, at the time of the offer and sale, are residents of the state or territory in which the issuer is resident. Rule 147(d). Similar criteria are provided for determining the residence of offerees and purchasers. Rule 147(h) provides an integration safe harbor that includes any prior offers or sales of securities by the issuer made under other provisions as well as certain subsequent offers or sales of securities by the issuer occurring after completion of the offering under Rule 147. See §12.30.
Rule 147A (17 CFR §230.147A) is substantially similar to Rule 147, with the following significant differences:
The issuer is deemed to be a resident of a state or territory in which the issuer has its principal place of business. In contrast to Rule 147, the issuer need not also be organized under that state's laws. For example, an LLC formed under Delaware law but having its principal place of business in California will be deemed to be a resident of California.
In recognition of the reality that offerings made using the Internet will generally transcend state borders, offers may be made to out-of-state residents as long as sales are made only to in-state residents.
Buyouts and Dissolution
Effective January 1, 2017, dissolution of a California LLC requires only the vote of 50 percent or more of the members. See Corp C §17707.01 (as amended). This 50 percent threshold may be particularly useful for LLCs with only two members to avoid a deadlock between them. The drafter and the client may also choose to require supermajority or unanimous consent of the members to elect to dissolve the LLC. See §10.51.
Dissolution will be triggered by the vote of 50 percent or more of the voting interests of the members or of a greater percentage of the members' voting interests as may be specified in the articles or operating agreement. Corp C §17707.01(b). The operating agreement cannot withdraw the right of members to vote on dissolution. Corp C §17704.07(t). Former Corp C §17707.01(b) used the term "majority of the members" to define the minimum vote required to trigger a voluntary dissolution. "Majority of the members" is defined in Corp C §17701.02(m) as "more than 50 percent of the membership interests of members in current profits of the limited liability company." A 2016 amendment to §17707.01(b) replaced "majority in interest" with "50 percent or more of the voting interests of the members." Stats 2016, chap 66, §1, effective January 1, 2017. This is a substantive change, because it now means that in a 50-50 deadlock situation, a 50 percent owner can trigger a voluntary dissolution. The voting standard now parallels that used for California corporations. See Corp C §1900(a) (vote of shareholders holding shares representing 50 percent or more of voting power). See §16.10.
The operating agreement may not vary or eliminate the buyout procedure specified in Corp C §17707.03(c). Corp C §17701.10(c)(7). In contrast, the buyout procedures for California corporations may be modified or eliminated by the articles of incorporation. See Corp C §2000(a). See §16.19.
Because modification or elimination of the buyout procedure is prohibited in the operating agreement, it is probably also prohibited in the articles of organization. The latter conclusion arises from the interplay between Corp C §17702.01(c) ("Subject to subdivision (c) of Section 17701.12, articles of organization may also contain any other provision not inconsistent with … [the mandated provisions for the articles"]) and Corp C §17701.12(c) ("If a record that has been delivered to the Secretary of State for filing … contains a provision that would be ineffective under Section 17701.10 if contained in the operating agreement, the provision is likewise ineffective in the record"). See §16.19.
In Goles v Sawhney (2016) 5 CA5th 1014, 1019, a case concerning a corporation, the court ruled that Corp C §2000 "does not permit a lack-of-control discount when determining the fair value of a minority shareholder interest" and further held that in a Corp C §2000(c) appraisal proceeding, the appraisers must value derivative corporate claims involving breach of fiduciary duty. See §§16.20B, 16.20D.
The 15 BLS Standing Committees publish eBulletins announcing developments in their area of law and upcoming events open to BLS members. Click here to sign up to receive these eBulletins from any BLS Standing Committee completely free of charge.
Legal Support Needed for
Survivors of the California Fires
Legal services organizations have been flooded with requests for
help following the fires in California. The State Bar of California has a
number of resources to help attorneys willing to help with the recovery.
Attorneys can sign up online with the State Bar to be notified
about pro bono opportunities related to the fires. Contact Sharon Ngim at
Elizabeth Hom at
the State Bar of California Office of Legal Services for questions.
To sign up to become a
Online training and technical assistance are available. Once attorneys have been trained in providing
legal help after a disaster, they can volunteer to provide pro bono legal
services with a disaster response team.
If you know of other opportunities for pro bono help from BLS
members, please contact Dennis Wickham,
Did you know that the BLS maintains a presence on LinkedIn, Twitter, and Facebook where it posts regular updates about new cases, new regulations, key legislative developments, and news and events from the BLS’s Standing Committees? What you may not know is that you can not only send items to the BLS to post or tweet, but also suggest items from your own social media pages for the BLS to re-post, re-tweet, or like. Doing so expands the reach of what you have to say to everyone who likes or follows the BLS on its various social media platforms, and may result in the BLS following you! Please submit your suggested items for consideration or direct any questions to BLS Social Media Coordinator, Reno Fernandez (reno@MacFern.com) and join the ever-expanding discussion!
Standing Committees continue to accept applications to fill vacant seats. Practitioners and other legal professionals who are members of the BLS and who have at least five years of experience are eligible to apply. Membership on a committee affords unique opportunities to participate in the creation of law in your practice area, to get to know and be known by other practitioners, to work with the recognized leaders in your field, and to stay on the cutting edge of developments and practice techniques. Membership is a rewarding experience that keeps one ahead of, and in touch with, business law developments. Most committees meet once a month, often by phone. A description of the required commitment and application process, along with a link to the application, can be found here.
The BLS achieves its goals through the work of its 15 Standing Committees. You are invited to attend the regular monthly meeting of any BLS Standing Committees (see below for meeting dates). These monthly meetings provide attendees an excellent opportunity to chat with committee members and other lawyers with a similar expertise. Some committees even offer free MCLE credit! Please see the contact person listed below to RSVP or request more information. Follow us on Twitter @calbarbuslaw. Use a Standing Committee’s hashtag to search for tweets by that committee in its designated field and to re-tweet.
For a list of upcoming meeting dates and contact persons, click HERE.
Dennis Wickham, Editor-in-ChiefKristina Del Vecchio, Contributing Editor
Dennis Wickham, Editor-in-Chief
Cathryn S. Gawne, Contributing Editor
Kenneth Minesinger, Contributing Editor
Corey R. Weber, Contributing Editor
Monique D. Jewett-Brewster, BLS Vice Chair of Publications
Uzzi O. Raanan, BLS Chair
For contact information, see the Executive Committee Roster HERE.
To join the BLS and receive membership benefits