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One of the worse situations a company may face to be determined to be an investment company under the Investment Company Act of 1940, as amended (the act). If determined to be an investment company, the company is subject to the full regulation under the act. In addition, a company may inadvertently become an investment company; in such a case, all of its contracts are potentially voidable and it cannot engage in any other business.…
Joint ventures should be considered as an alternative to an acquisition if the acquiring party feels it does not have the experience or the business risk appetite to do it individually. They have the benefit of allowing parties to have greater success working together on a specific project than if they did it themselves. Benefits of a joint venture There are many benefits of entering into a joint venture. Some of them include:…
The term “boilerplate” refers to standardized language in a contract that usually appears at the end of the agreement (often in a section titled “miscellaneous” or “general terms”). While boilerplate provisions are common clauses in a contract, they should always be checked carefully and tailored to the particulars of the situation as they will address important issues that will be determinative of the parties’ rights with respect to the business contract. You should remember that…
Because most indemnification claims are made by a buyer, the seller seeks to limit its indemnification obligations. Some ways in which the indemnification obligations can be limited include: Materiality of breach or claim amount Caps on indemnification Baskets Payment adjustments for insurance proceeds or tax benefits Sellers often like to include materiality qualifiers in the indemnification clause as to the claim amount and the type of claim. These qualifiers serve the purpose of limiting the…
Arbitration is an increasingly popular method of resolving disputes, but drafters of business contracts need to be aware that arbitration may not be suitable for every dispute. The question of whether or not to arbitrate often comes down to when you want to decide arbitration is right – before or after a dispute. Many people decide to include an arbitration clause during the negotiation of the business contract. The parties may decide to include an…
Most transactional documents include effort clauses as covenants to require a party to perform a certain act or acts to achieve a stated goal. These terms generally include the following: Best efforts Reasonable efforts Commercially reasonable efforts There are no universally accepted definitions or standards for interpreting these terms. As a result, their use can create ambiguity and uncertainty when a dispute arises, making it difficult to predict an outcome. When a court evaluates whether…
A non-competition agreement raises state-law public policy concerns. As a result, states often restrict the scope of non-competition agreements before they will enforce them. The protectable interests that states will recognize, the rules of construction that states will apply and the required elements of a non-competition agreement will vary from state to state. You may adhere to general guidelines in drafting non-competition agreements, but you should always consult local law. Most jurisdictions disfavor non-competition agreements…
Indemnification clauses in purchase and sale agreements are intended to address the obligation of one party to indemnify and hold the other party harmless from direct and third party claims. However, indemnification clauses also allocate the risk of losses between the parties. An indemnification clause should specify the rights of the parties following a breach of representations, warranties, covenants or the occurrence of a specific liability. On one hand, a buyer will negotiate an indemnification…
The Securities and Exchange Commission (SEC) has approved the Financial Industry Regulatory Authority’s FINRA Rule 2040, which will permit the payment of compensation, fees, concessions, discounts, commissions or other allowances to unregistered persons if a member firm determines the activities of the unregistered person in question do not require registration as a broker-dealer. Support for the determination can be derived by, among other things, reasonably relying on previously published releases, no-action letters or SEC staff…
HR 686, The Small Business Mergers, Acquisitions, Sales & Brokerage Simplification Act, was introduced in the U.S. House of Representatives on Feb. 3, 2015. This bill is identical to HR 2274, which was passed unanimously in the U.S. House of Representatives in 2014, but was never acted upon in the U.S. Senate. HR 686 would exempt an “M&A broker” from registration under the Securities Exchange Act of 1934 if the M&A broker is…