This document discusses how to determine if an individual is considered an "affiliate" under Rule 144. It provides characteristics that courts examine to identify control persons, including being a corporate officer or director, owning a large percentage of shares, or having ongoing relationships with the company or other control persons. The document advises that to claim non-affiliate status to sell shares without registration, the individual has the burden to prove exemption and should consider filing an interpretative no-action letter with the SEC outlining why they should not be considered an affiliate.
Introduction, Memorandum & Article of Association
1.1 Company : Definition, Theories of Corporate personality
1.2 Kinds of Companies : Private Companies – nature and advantages –
Government Companies- holding and subsidiary companies
1.3 Registration and Incorporation of company
1.4 Memorandum of Association, Various clauses, Alteration therein, Doctrine of
ultra virus, Consequences of ultra virus transaction
1.5 Articles of Association : binding force, alteration, its relation with
Memorandum, doctrine of constructive notice and indoor management
1.6 Meetings-Types of meetings-Time of meeting
Prospectus, Promoters, Shares, Share holder & Members, Share Capital etc.
2.1 Prospectus : contents, Shelf Prospectus, Misrepresentation in prospectus,
Remedies for misrepresentation and liabilities thereof, Red Herring Prospectus
2.2 Promoters, Shares : General Principles for allotment, statutory restrictions,
Share Certificates, Transfer of shares, dematerialized shares (DEMAT)
2.3 Shareholder and members of company : Distinction, Modes of becoming
members of company
2.4 Share Capital : Kinds, alteration and reduction of share capital, Buyback of
share
Directors, Dividends, Audit, Accounts, Oppression & Mismanagement etc.
3.1 Directors : Position, appointment, qualifications, vacation of office, removal,
resignation, powers and duties of directors, Managing Director
3.2 Dividends, Audits and accounts, Debentures, Fixed and floating charges, kinds
of debentures, protection of minority rights
3.3 Prevention of Oppression and Mismanagement
Directors, Dividends, Audit, Accounts, Oppression & Mismanagement etc.
3.1 Directors : Position, appointment, qualifications, vacation of office, removal,
resignation, powers and duties of directors, Managing Director
3.2 Dividends, Audits and accounts, Debentures, Fixed and floating charges, kinds
of debentures, protection of minority rights
3.3 Prevention of Oppression and Mismanagement
4.1 Reconstruction and Amalgamation of Company
4.2 Types of winding up under the Companies Act, 2013: Reasons, grounds, who
can apply? Procedure, powers of liquidator, powers of court
4.3 Corporate Social Responsibility
4.4 Corporate liability : Civil and Criminal
Introduction, Memorandum & Article of Association
1.1 Company : Definition, Theories of Corporate personality
1.2 Kinds of Companies : Private Companies – nature and advantages –
Government Companies- holding and subsidiary companies
1.3 Registration and Incorporation of company
1.4 Memorandum of Association, Various clauses, Alteration therein, Doctrine of
ultra virus, Consequences of ultra virus transaction
1.5 Articles of Association : binding force, alteration, its relation with
Memorandum, doctrine of constructive notice and indoor management
1.6 Meetings-Types of meetings-Time of meeting
Prospectus, Promoters, Shares, Share holder & Members, Share Capital etc.
2.1 Prospectus : contents, Shelf Prospectus, Misrepresentation in prospectus,
Remedies for misrepresentation and liabilities thereof, Red Herring Prospectus
2.2 Promoters, Shares : General Principles for allotment, statutory restrictions,
Share Certificates, Transfer of shares, dematerialized shares (DEMAT)
2.3 Shareholder and members of company : Distinction, Modes of becoming
members of company
2.4 Share Capital : Kinds, alteration and reduction of share capital, Buyback of
share
Directors, Dividends, Audit, Accounts, Oppression & Mismanagement etc.
3.1 Directors : Position, appointment, qualifications, vacation of office, removal,
resignation, powers and duties of directors, Managing Director
3.2 Dividends, Audits and accounts, Debentures, Fixed and floating charges, kinds
of debentures, protection of minority rights
3.3 Prevention of Oppression and Mismanagement
Directors, Dividends, Audit, Accounts, Oppression & Mismanagement etc.
3.1 Directors : Position, appointment, qualifications, vacation of office, removal,
resignation, powers and duties of directors, Managing Director
3.2 Dividends, Audits and accounts, Debentures, Fixed and floating charges, kinds
of debentures, protection of minority rights
3.3 Prevention of Oppression and Mismanagement
4.1 Reconstruction and Amalgamation of Company
4.2 Types of winding up under the Companies Act, 2013: Reasons, grounds, who
can apply? Procedure, powers of liquidator, powers of court
4.3 Corporate Social Responsibility
4.4 Corporate liability : Civil and Criminal
this presentation is about related party transactions of business firms and disclosure of related party transaction according to IAS 24. The last part of the presentation includes findings of several articles in different part of the world, mainly focused on developed and developing countries.
Published Spring 2011 in Boston Bar Association’s Business Law Section Newsletter
SES Advisors’ Rob Edwards coauthored this article, which summarizes the special treatment of ESOPs, explains how leveraged ESOPs work and discusses key ESOP valuation concepts that apply to ESOP transactions.
What mechanisms do the IRS, EDD, or BOE have to pierce the veil of limited liability and hold individual(s) personally liable for trust taxes? The presentation provides an overview for personal liability issues for payroll taxes, sales taxes, and other excise taxes.
Shareholder disputes: Practical tips to prepare shareholder agreements and co...LE & TRAN | Trial Lawyers
When setting up a business entity, it is critical that the process is performed correctly to avoid future issues. This week, we would like to share with you our experience in drafting shareholder agreements and company charters. These instruments are essential for business investors when setting up a joint venture or in seeking protection for their investment in the period following a M&A project. This Insight will provide some practical tips for ensuring the validity of these instruments, minimizing the possibility of shareholder disputes, and ensuring that your business operations remain uninterrupted should a shareholder dispute arise.
this presentation is about related party transactions of business firms and disclosure of related party transaction according to IAS 24. The last part of the presentation includes findings of several articles in different part of the world, mainly focused on developed and developing countries.
Published Spring 2011 in Boston Bar Association’s Business Law Section Newsletter
SES Advisors’ Rob Edwards coauthored this article, which summarizes the special treatment of ESOPs, explains how leveraged ESOPs work and discusses key ESOP valuation concepts that apply to ESOP transactions.
What mechanisms do the IRS, EDD, or BOE have to pierce the veil of limited liability and hold individual(s) personally liable for trust taxes? The presentation provides an overview for personal liability issues for payroll taxes, sales taxes, and other excise taxes.
Shareholder disputes: Practical tips to prepare shareholder agreements and co...LE & TRAN | Trial Lawyers
When setting up a business entity, it is critical that the process is performed correctly to avoid future issues. This week, we would like to share with you our experience in drafting shareholder agreements and company charters. These instruments are essential for business investors when setting up a joint venture or in seeking protection for their investment in the period following a M&A project. This Insight will provide some practical tips for ensuring the validity of these instruments, minimizing the possibility of shareholder disputes, and ensuring that your business operations remain uninterrupted should a shareholder dispute arise.
The Chartered Accountants contribution in protecting minority interest for th...CA. (Dr.) Rajkumar Adukia
In order to function the corporate affairs effectively and successfully and to increase the corporate governance, the interest of the minority need to be protected.
The Company law had given a protection to such minority shareholders by giving an option to go to Tribunal for relief and the tribunal on such application shall take to prevent such oppression and mismanagement.
Independence of external administratorsSV Partners
If a company is insolvent or in financial difficulty,
it can be put into external administration. Here are the three
most common forms of external administration.
This information sheet gives general information for shareholders on the three most common forms of external administration (liquidation, voluntary administration and receivership).
Freescale Semiconductors, Inc. Student name Course Date .docxhanneloremccaffery
Freescale Semiconductors, Inc.
Student name
Course
Date
Additional laws and harsher penalties
harsher penalties acts as a deterrent to crime
Additional laws to cover the loophole used to fraud
Hefty fines prohibits engagement in crime
Increases compliance with the laws
Human beings who have a tendency to break laws run Corporates. However having harsher penalties acts as a deterrent to committing a crime since they are afraid of penalties and severe fines to be paid. Having additional laws to cover the loophole used by the executives to commit unethical or fraudulent acts. Also having Hefty fines and increases, supervision prohibits engagement in crime as well as increases compliance with the laws
2
1. strategies to eliminate or mitigate insider trading
Preventing information that is non public from circulating
Such information denies perfect knowledge to investors
Increases the cost of stock through hoarding information
Only fully disclosed information should circulate
Insider trading happens when a few people, usually the executives, hold confidential information about the trading activities of the firm. One of the ways of preventing insider trading is by preventing information that is nonpublic from circulating within the market. This requires a full disclosure by the firms concerning the intended trading activities of the company. Having nonpublic information in circulation denies perfect knowledge to investors as well as increases the cost of stock through hoarding information for personal gains. However, when the information is public, the price will remain low and eliminate the privilege of knowing first (Legal Information Institute, 2013).
3
2. strategies to eliminate or mitigate insider trading
Restricting the time where the top executives of a firm can sell the shares awarded to them to an automatic pre arranged plan
The stock option awarded to top executives be sold at pre agreed time
Automatic time of selling stock eliminates making deals with investors
Makes the information publicly available
Most corporates reduce the cost of holding top-level executive through stock options. However to deter insider trading, restricting the time where the top executives of a firm can sell the shares awarded to them to an automatic pre-arranged plan should be followed. This restriction removes the hoarding of the investment information by the executives. There should be a clearly defined timeline when the executives sell their stock option, only after they have received their compensation and not before being compensated (Gandel, 2012).
4
3. strategies to eliminate or mitigate insider trading
Ban the payment of the executives using the stock options
Eliminates the unfair investment information holding by executives
Firms to seek other alternatives of paying executives
Continued of stock options makes executives hold information others don’t have
The most useful tool would be a total ban the paymen ...
11 Legal Essentials the Every Board Director Must UnderstandVirtual, Inc.
It’s important that directors understand what their responsibilities are – and most directors will find it comforting to understand them so that they can act without fear of running afoul of the law. Learn the specifics of the laws governing boards and their individual members.
1. Rule 144 – Is She an Affiliate?
Unfortunately, the 1933 Act does not define the terms "control person" or "control
relationship". However, the SEC in Rule 405, by its own authoritative style, refers
control as follows:
"The term "control" including the terms "controlling," "controlled by," and "under
common control with," means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or otherwise
[intermediaries, agents,…].”
When it comes to control, ownership or ownership interest means a legal or
beneficial interest in an institution or its corporate parent or a right to share in the
profits derived from the operation of an institution or its corporate parent.
When a big shareholder acquires ownership and control of the corporation, the
corporation is required to file a Form 8-K with the SEC notifying that agency of
the change in control. A change in ownership that results in a change in control
increases or decreases an investor the right to vote and/or ownership percent of the
corporation therefore the ability to control the corporation. Ownership or
ownership interest does not include an ownership interest held by:
• A mutual fund that is regularly and publicly traded
• A U.S institutional investor
• A profit sharing plan of the institution or its corporate parent
• An employee stock ownership plan
ASC 860-10-20 describes beneficial interests as ‘rights to receive all or portions of
specified cash inflows received by a trust or other entity, including but not limited
to senior and subordinated shares of interests, principal, or other cash inflows to be
‘passed-through’ or paid-through, premiums due to guarantors, commercial paper
obligations, and residual interests whether in the form of debt or equity’
That said, all corporate directors as well as senior officers of a corporation are
control persons of that corporation based on the 1933 Act purposes. Some
executive officers at one level below corporate officers as well as officers and
directors of subsidiaries are somehow control persons because they are delegated
temporary a least with these positions. But, the identity of control persons depends
on the corporate organizational and delegation policy and the top management
discretion.
It is clear that only corporate officers or directors who sign misleading statements
(10-Q, 10-K, 8-K, S-3, S-8 and others) may be found liable but more people will
be forced to trade under Rule 144. Large share ownership is also indicative of
control status.
1 Research conducted by Arthur Mboue
2. It also depends upon ongoing relationship with the company, past relationship
with the company, relationship with other control persons, or continued ownership
of a large block of the company's shares.
In addition, affiliate status could be attributed through other indicia of control, such
as board representation.
Some cases with no substantial body of law defining control, have found that
possession of power to control is enough, no actual use of that control. These
cases are documented under Sections 15 and 20a of the Securities and Exchange
Act.
The SEC advises that actual control or the ability to control is enough. Inaction in
exercising this right and absenteeism of the control person may or may not
disqualify her from this exemption.
The SEC staff and courts publicly advise about the utilization of limited tests to
determine who is a control person, I provide you with a long version of this test
below
Characteristics in determining whether or not one can be considered a control
person in the eyes of the court
1. Corporate officers of company
2. Corporate directors (including outside and independent directors)
3. Some subsidiaries board directors
4. Some executive officers at one level below corporate officers rank
5. Board representation
6. Large share ownership with more than 10% of an issuer outstanding
equity security (controlling shareholder with legal and/or beneficial
interests)
7. Past relationship with the company (newly retired officers,…)
8. Ongoing relationship with listed or others control persons (close
family members, confidential friends and confidential advisors)
9. Ongoing relationship with the company (with negative control rights-
no veto or voting rights, acting in disguised capacity, nominal, figure-
head and/or de-facto officers)
10.Continued ownership of a large block of the company share (with
inactive rights)
After a close examination of these characteristics, you will realize that these
presumptive characteristics are rebuttable; a person who claims that she is not an
affiliate in order to use the exemption from registration has the burden of proving
the availability of the exemption. The process dictates that counsels of the
company or this person must file a non- action letter to the SEC. Although the
counsel can file either an interpretative letter or an exemptive letter, it is good for
2 Research conducted by Arthur Mboue
3. him to file an interpretative and/or exemptive no action letter. It is addressed to the
office of the Chief Counsel, Division of Corporation Finance, SEC with these
paragraphs:
• Heading:
o ‘I am writing on behalf of …)
• Background and Transaction request
• Request
o Consistency of relief is based on prior staff decisions (it take time to
review all of them but this review is necessary)
• Legal Discussion
o General
o Resale of Control shares by affiliates in private placement market
(PPM): the Staff has taken position in numerous no action letters that
securities issued without registration (PPM) in reliance upon Section
3(a)(10) are not all deemed to be restricted securities within the
meaning of Rule 144(a)(3) under the Securities Act. See Aura
Systems, Inc (July 8, 1994), Medical Imaging Centers of America,
Inc, LA gear, Inc and Newbridge Networks Corporation.
Accordingly, persons to whom shares are issued who are not deemed
to be ‘affiliates’ of the Company within the meaning of Rule 144(a)
(1) may publicly resell such shares without registration (PPM) in
reliance upon Section 4(1) of the Securities Act. Also, any persons to
whom shares are issued who deemed to be an ‘affiliate’ of the
company within the meaning of Rule 144(a)(1) may publicly resell
such shares so long as they comply with all of the provisions under
Rule 144 including rule’s holding period requirement of 6 months and
others requirements. In view of the fact that, Plaintiff’s director is a
shadow director of the company with a little control of the corporation
within the meaning of Rule 405 (defined above)… In addition,
Section 2(a)(9) provides a presumption of non-control to “Anyone
who does not own more than 25% centum of the voting securities of
any company”. Section 2(a)(9) provides that either presumption may
be rebutted by evidence but will continue ‘until a determination to the
contrary made by the Commission by order either on its own motion
or on application by an interested person. Nevertheless no person
may rely on the presumption that all board directors are equal and
hold the same control rights based on all the facts and circumstances.
It is why we expect to be of the opinion that Plaintiffs’ director Ms.
Mary Shapiro will not be deemed to be an ‘affiliate’ of the company.
3 Research conducted by Arthur Mboue
4. We understand that, as set forth in Release No. 33-6253, the Staff
does not provide advice with regard to the determination of ‘affiliate’
status or availability of the exemption from registration under Section
4(1) of the Securities Act; accordingly, we do not request the Staff to
express a position with respect to any such determination. Because
the determination of non- control status should be made under the
consideration of all relevant facts and circumstances including the
passivity implied commitment that would not have the ability to
exercise controlling influence.
• Conclusion:
o For the forgoing reasons, we respectfully request that the Staff
confirms that the Commission will not recommend any enforcement
action if the company’s independent director, Ms Mary Shapiro trade
her shares as a non-affiliate. In addition to electronic submission of
this letter, I am sending an original and 7 copy of this letter. In event
that the staff is not inclined to respond favorably to this request, we
would appreciate the opportunity to discuss your concerns before
receiving your written response. If you have any question regarding
an aspect of this request, or if you require additional information,
please feel free to call me at… Thank you in advance for your
attention to this matter
• Signature
o It is signed by the Company’ securities counsel
Good luck to Mary Shapiro
4 Research conducted by Arthur Mboue