Archive for the ‘Laws and Regulation’ Category

Annual Shareholder Meeting Minutes – What Should You Include?

January 23rd, 2015 By Virtual Paralegal Services

Whether you have one shareholder or many, all states require corporations to hold an annual shareholder meeting and record the minutes. Most corporations, especially smaller organizations, only hold one meeting a year, therefore making recording the meeting very important.

Recording the minutes properly can be a tedious task. The paralegals at Virtual Paralegal Services are trained to precisely document the minutes of the meeting and produce an accurate account for future reference. Listed below are some of the main elements to include in your annual shareholder meeting minutes.

Basic Information About the Meeting

Minutes should include the location of the meeting, date and time of the meeting, as well as who called the meeting to order. The president, acting as chair of the meeting, may conduct the meeting.

Often a corporation states the meeting date in the bylaws and therefore notice is determined as already given. If that is not the case, the minutes must document how proper notice was given to the shareholders.

Attendance and Quorum

What makes up a quorum depends on each individual state law. Sometimes a corporation’s bylaws require that an even greater number must be present for a quorum. However, no matter what the state laws and bylaws specify, a quorum must be present in order to take any vote at the annual shareholder meeting.

The individuals in attendance should be specifically documented with their name and whether they appeared in person. Shareholders may be allowed to appear by proxy. Proxy rules are determined through individual state laws as well as corporation bylaws.

General Report

The chairman or president may give a general report about the corporation. The corporation may choose to inform the shareholders about the business and finances of the corporation. In addition they should inform the shareholders about any changes to shareholder’s stock. It should be documented if any additional handouts were provided to the meeting attendees.

Approval of Previous Minutes

Towards the beginning of the meeting, the secretary or paralegal will submit the prior meeting’s minutes to be approved. After reviewing the minutes, the shareholders will vote to approve and adopt the minutes. This should be recorded in the current annual meeting’s minutes.

Nomination/Election of Directors and (if applicable) Officers

One of the most important purposes of the annual meeting is to elect the directors and officers for the upcoming year. The annual shareholder meeting minutes must state the individuals nominated as well as who has been elected and with what vote count. As stated before, any vote that is taken requires a quorum.

Any Other Actions or Proposals Needed

Annual meetings are a time for the shareholders and executives to interact. Any issues or decisions within the corporation that need to be resolved can be brought up at the meeting. All information, including the vote counts, should be documented.

Next Meeting

Before adjournment, the next annual meeting can be determined and recorded in the minutes. This takes care of the issue of notice for shareholders for the next meeting.

Annual shareholder meetings are important to the management of a corporation. Contact us today to find out how the paralegals at Virtual Paralegal Services can assist in creating the most comprehensive account of your annual meetings.

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International Corporate Contracts

October 27th, 2014 By Virtual Paralegal Services

There are two bodies of law that govern international contracts: the Uniform Commercial Code (“UCC”) of America and the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), which is an international body of law. It is important to know and understand a client’s business goals to better represent them regarding corporate contracts. And, as such, it is imperative to know which rule of law will govern their business.

UCC vs. CISG

The UCC is applicable when the transaction involves a sale of goods where U.S. law applies. It is applied automatically during sales of goods. In contrast, the CISG is applicable in commercial transactions of goods between the parties in signatory nations. These parties have the ability to modify the UCC in an international context. The most significant difference between the UCC and CISG is that the latter allows its parties to opt out of the convention. In order for the opt-out choice to be effective, both parties must opt out and both parties must clearly specify an alternate choice of law.

Both are only applicable during sale of goods. The CISG does not apply to service contracts; however, it does apply to a mixed contract of goods and services. Also, consumer goods are not regulated by the CISG, but are regulated by the UCC. The CISG will not cover certain items such as goods bought by auction, shares of stock, investment securities, sales of aircraft, and sales of electricity.

Similarities between UCC and CISG

Both UCC and CISG provide a Warranty of Merchantability (goods are fit for their ordinary purpose) and Warranty of Fitness for a Particular Purpose (goods are conformed to the purpose made known to the seller, where buyer reasonably relies on seller’s skill and judgment in choosing goods).

In the event of contract ambiguities, both the UCC and CISG allow for similar methods of interpretations. The court, or dispute resolution body, will look at either the course of dealing between the parties (previous contracts); course of performance (the parties interactions throughout the current contract); or the usage of trade terminology (how other parties in similar industries act).

Available Remedies under UCC and CISG

Although both codes use different words, they allow for similar remedies. In the event of a breach the non-breaching party has the right to purchase alternative or replacement goods. Consequential damages are available. The buyer has the right to receive the difference in the price paid minus the value of goods received from the seller. Finally, the seller has the right to force the buyer to pay, take delivery, or perform its obligations under the contract.

Damages and the Foreseeability Requirement

When a party alleges there was a breach to the contract, the CISG allows for recovery only in cases where the damages were foreseeable. However, under the CISG, the foreseeability requirement is much more relaxed than under the UCC, thereby allowing for greater recovery for the non-breaching party. The CISG only requires that the consequences of the breach be possible at the time of contract formation. In contrast, the UCC requires the breaching party to know or have reason to know of the potential consequences.

Do you have questions about contracts? Contact us today to find out how we may best serve your needs!

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New Rules Regarding Loan-Backed Securities

September 3rd, 2014 By Virtual Paralegal Services

Recently, the Securities and Exchange Commission (“SEC”) unanimously adopted new rules concerning loan-backed securities linked to autos and mortgages. Loan-backed securities generally are created by bundling a large number of loans, which are then securitized and sold to investors. The new rules take effect in 60 days.

Why the Changes to Loan-Backed Securities?

Securities backed by loans had a major role in the 2008 financial crisis. For example, home mortgages were bundled and sold as securities, which resulted in billions of dollars of losses after the housing market crashed.

The new SEC rules will require firms that sell securities backed by loans to provide borrower credit and income information to investors in a standardized format. The SEC will then post the submitted information on its website. The idea is that investors will then be able to make more informed decisions regarding the risks involved with loan-backed securities. To protect consumer information, the SEC will not include borrower names or other identifying information in the data it collects on its website.

These changes are especially important given a recent report issued by the Federal Reserve that revealed that the number of auto loans issued is at an eight-year high. While the percentage of high-risk, or subprime, loans still make up a lower percentage of total auto loans in comparison to before 2008, the Federal Reserve report indicated the current high auto loan rates are due, in part, to increased lending to risky borrowers. The changes occur in the larger context of SEC efforts to increase transparency and oversight in securitized assets.

SEC chairwoman Mary Jo White said of the new rules, “These reforms will make a real difference to investors and to our financial markets.”

The new SEC rules will also:

  • allow investors more time to consider a securitization offering;
  • change the criteria for determining eligibility in expedited securitizations known as “shelf offerings”; and
  • revise the reporting requirements for loan-back securities.

New SEC Rules Also Impact Credit Rating Agencies

In addition to the other changes with loan-backed securities, the new SEC rules also require credit rating agencies to make reports to the SEC on how they are safeguarding their rating process to ensure that ratings are determined fairly. The new SEC rules prohibit credit rating agency’s salespeople from participating in the ratings process. This portion of the new rules passed by the SEC was not unanimous, but rather will be implemented after a 3-2 vote.

The SEC has taken an interest in credit rating agencies and potential conflicts of interests post-financial crisis. In the past, some credit rating agencies have been criticized for rating securities as low risk when in fact they were high risk. Consumer confidence in credit rating agencies has suffered post-recession.

Virtual Paralegal Services provides senior paralegal support to law firms and other businesses throughout the United States, and can provide more information to interested parties on this specific topic. Contact us to discuss your particular needs.

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Ratifying Unauthorized Corporate Acts with a Certificate of Validation

July 24th, 2014 By Virtual Paralegal Services

Effective on April 1, 2014, Title 8 Section 204 of the Delaware General Corporation Law provided a means of ratifying a defective corporate act. A “Defective corporate act” is defined as “an over issue, an election or appointment of directors that is void or voidable due to a failure of authorization, or any act or transaction purportedly taken by or on behalf of the corporation that is, and at the time such act or transaction was purportedly taken would have been, within the power of a corporation under subchapter II of this chapter, but is void or voidable due to a failure of authorization.”

Guidelines for filing a Certificate of Validation are provided in Section 204(b)

Filing Fees
The minimum filing fee is $2,500. In addition, if the Certificate of Validation retroactively increases authorized stock, annual reports for past years are recalculated and if any increased franchise taxes result, they are due at the time of filing. Alternatively, if authorized stock is retroactively decreased, no refund for any decrease in Franchise Tax will be granted.

Practical Issues
This new process has exposed some practical issues for which filers should be aware:

  1. Amendments cannot be combined and corrected in one document. A separate Certificate of Validation is required per amendment.
  2. Amended Annual Reports: If amended annual reports are required, DE statutes allow one year to file an annual report. Therefore, a corporate officer must deal directly with the Franchise Tax Dept to determine the process of filing the reports and to determine the applicable fees. Once fees are determined, the company either pays them directly to Franchise or they can wire them to the service company to handle payment.
  3. Since each filing must be handled individually, service companies cannot include them in batch filings.
  4. Filings cannot be pre-cleared or expedited.
  5. Filings can only be submitted as 24 hour and yet processing time has taken over 24 hours.

Click here for a sample Certificate of Validation.

It is important for corporations to review and maintain – on a regular basis – their minute books and corporate resolutions to ensure their corporate actions are in compliance with their certificate of incorporation and bylaws. If not, there may now be an easier means of ratifying those unauthorized actions, but it is not cheap.

For more help on this topic or to learn more about VPS’s minutebook services, please contact VPS today.

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Securities and Rule 144A

July 10th, 2014 By Virtual Paralegal Services

144A is a SEC rule that allows (within specified circumstances) qualified institutional investors to trade unregistered securities on the NASDAQ Portal Market for investment purposes – but not for resale to the general public. The purpose of 144A is to enable a more efficient and liquid resale market for unregistered securities. This makes it easier for:

  • Private companies to raise money in US capital markets
  • Institutional investors to trade restricted non-registered securities

While section 5 of the Securities Act of 1933 requires all offers and security sales to be registered, it allows for exemptions. The US Securities and Exchange Commission states that Rule 144A provides the exemption, permitting the resale of restricted securities (securities acquired in unregistered, private sales from the issuing company or from an affiliate of the issuer) if specified conditions are met, including:

  • Holding period: the issuer must have held the securities for one year – if the issuing company was subject to the reporting requirements of the 1934 Act, the required holding period is reduced to six months.
  • Current Public Information: The issuing company must provide the public with sufficient information regarding the nature of the business. They must also provide a complete list of all officers and directors and an up-to-date financial statement.
  • Trading Volume Formula: the amount of equity securities which can be sold in a given 3-month period are bound by the 1% measurement guideline.
  • Ordinary brokerage transactions:

 – Affiliates must conduct sales as routine trading transactions
 – Brokers and sellers may not solicit orders to purchase securities
 – Brokers are limited to standard commission

  • Filing Proposed Sale Notice with the SEC: A notice must be filed using Form 144

 – For sales of 5,000+ shares to totaling $50,000+ w/in a three-month period
 – Securities must be sold within three months of filing the notice
 – If sales are not completed, an amendment notice must be filed

  • The legend has been removed:

 – Only transfer agents can remove legends
 – Transfer agent must obtain the issuer’s consent
 – If a dispute over the removal of a legend arises, said dispute is covered by state law, rather than federal

Rule 144A also allows for general solicitation and reduced publicity restrictions, freeing the issuer from compliance with rule 135c under the securities act. The new rule permits offering participants to communicate with prospective investors in Rule 144A offerings with no limit as to the method of communication or the number or type of investors (QIBs or non-QIBs) contacted using the following methods:

  • Mass emails
  • Advertisements
  • Cold calls
  • Articles, Interviews, and other communications

All of the above can be distributed via printed materials, television and radio broadcasts, or online. They, however, remain subject to anti-fraud provisions under federal security laws. In addition, there must be reasonable evidence that all sales are made to qualified institutional buyers.

Virtual Paralegal Services provides senior securities paralegal support to law firms and businesses across the United States. Contact us to learn how we can assist you.

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1099 Independent Contractors – Are you Compliant?

July 3rd, 2014 By Virtual Paralegal Services

In a study conducted by Intuit, 40 percent of the American workforce will be freelancers, contractors, and temp workers by 2020. Even now, many companies are replacing some of their full-time employees with part-time professionals, freelancers, and independent contractors. Some are keeping a present employee, but changing the status from employee to independent contractor. The changing workforce requires employers to be ever more vigilant about the questions and compliance requirements surrounding independent contractors.

Is that former employee – now contractor – or the new contractor truly a 1099 independent contractor or does he/she require a W-2? The difference is significant. You withhold and manage taxes for employees; while independent contractors pay their own based on the 1099s they receive (Form 1099 is the independent contractor’s equivalent of a W-2). The IRS expects you to know the difference between a W-2 employee and a 1099 independent contractor. In addition, you must make the correct annual filings with the IRS for both W2 employees and 1099 contractors. If you get it wrong, the penalties are high.

So how do you know the difference?
Ask the right questions.

1. Do you set the hours or does the worker set his or her own hours?
2. Naturally, you know what work you want accomplished, but who sets the guidelines for how, when, and where the work will be accomplished – you or the worker?
3. Does the worker furnish his or her own tools and equipment and hire his own assistants if needed?
4. Does the person have a workplace, home office, equipment storage, etc. that belongs specifically to him and is at a separate location from your business?
5. Does the individual work only for you – or is he/she free to obtain work for other companies simultaneously?
6. Do you set an hourly wage/salary or does the worker set his/her own rates/commissions per job?
7. Do you receive an invoice from the worker for his services?
8. Did you sign a contract for the work he/she is accomplishing on your behalf?

Using independent contractors to perform a multitude of tasks is beneficial for most businesses, involving far less liability and obligations than W-2 employees, and potentially eliminating the provision of employee benefits, insurance, tax withholding, etc. It is crucial; however, to not only classify an individual correctly, but to understand 1099 compliance.

Before hiring an independent contractor and signing a contract:

• Assess the independent contractor’s business and require pertinent documentation.
• Ask the independent contractor to complete a questionnaire specific to 1099 workers. Include a checklist that helps to determine if the worker is accurately classified as an independent contractor versus an employee.
• Sign a written contract with and maintain a separate file for each independent contractor. This file may include, but isn’t limited to the following documentation:
1. Copies of tax returns showing the contractor filed a Schedule C for the past couple years if he or she is a sole proprietorship
2. Copies of 1099 forms by other companies for whom the consultant has provided services
3. Professional licenses and proof of insurances
4. The signed independent contractor employment agreement and any other drafts of it
5. W-9 form signed by the consultant
6. List of equipment and materials the 1099 professional will use to perform services and costs
7. All invoices submitted for billing purposes

Written contracts are imperative and protect both your business and the independent contractor. Make sure your agreements include an Independent Contractor clause that clearly identifies the roles of the parties. Also, make sure you are managing your 1099 contractors and tracking 1099 payments correctly in order to comply with annual filing requirements.

Hiring independent contractors can be a tremendous benefit to your business.Contact Virtual Paralegal Services. We will help you create your questionnaires, draft your contracts, and help manage and maintain 1099 compliance.

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Certificate of Validation

March 19th, 2014 By Virtual Paralegal Services

Delaware House Bill 127 introduces a new filing authorizing a Delaware corporation to ratify defective corporate acts, over-issued, or putative stock. A Certificate of Validation will have to be filed if the defective act or stock is ratified. The basic filing fee will be $2,500.

If the Certificate is used to increase capital stock retroactively, increased Franchise Tax at the current rate for the entire period of time to the retroactive date will be due. However, if stock is retroactively decreased, there will be no refund granted for any decrease in Franchise Tax due over the retroactive period.

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The Importance of Annual Maintenance

March 15th, 2014 By Virtual Paralegal Services

In order to maintain the limited liability protection afforded legal entities organized under the laws of a jurisdiction, entities must follow certain legal requirements pursuant to the laws of its state of formation. Failure to follow these legal requirements may cause a court to “pierce the corporate veil” by treating the obligations and liabilities of the entity as the obligation and liabilities of its stockholders or members. Many times this results from failure to do any of the following:

  • Supply it with Adequate Resources
  • Observe Corporate Formalities such as Holding Annual
  • Meetings of Stockholders and Directors
  • Keep Separate Record Books Of the Corporation
  • Distinguish Corporate Assets From Personal Assets
  • Issue Stock

To learn more about the importance of annual maintenance, view the Importance of Annual Maintenance

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IRS Revises Process for Issuing EINs

January 13th, 2014 By Virtual Paralegal Services

As of 1/1/2014, the IRS has revised its process for issuing EINs.  The phone in option has been removed.  Therefore, if an EIN is not issued using the online application, the only option is to fax the application to the IRS.  The IRS then issues the EIN via fax within 4-7 business days.

There are several reasons why the online EIN application may not work:

(1)    The company name may be considered too common by the IRS.

(2)    If the responsible company in line 7 received its EIN using the online EIN application system, the IRS will not issue an online EIN to the subsidiary.

(3)    The IRS web site is down – which unfortunately is not a rare occurrence.

If the responsible party, be it an individual or corporation is a foreign entity, the only way to obtain an EIN is to phone in the application.  This process has not changed.

New companies with a responsible party who is a US citizen or company, moving forward more lead time may be required in order to obtain EINs.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-to-Apply-for-an-EIN

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