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Author: Tonya Price

Corporate governance for stakeholders

My journey to the practice of law has not been linear. My sensitivity to injustice and inequality, on the other hand, has been a constant driver. I’ve always been in search of a solution, which led me to seek a deeper understanding of the systematic ways inequality has been ingrained into the fabric of society, which led me to law school. If you had told me when I was eighteen that eventually I would come to the realization that a piece of the solution was dependent on reforming corporate governance, I would have scoffed indignantly at the idea that corporations could be anything but evil money-making machines.

I’m not sure when the switch flipped, but sometime during law school I began to see how corporations could be leveraged as a solution if we recast the role they play in society. As my colleague, Lenore Palladino, writes in her recent blog post on corporate governance, “Why Workers on Corporate Boards Just Makes Sense,” corporations are run “according to a neoliberal model of shareholder primacy,” but that doesn’t mean they have to continue to be run that way or that it even makes sense. Corporations can and should be run differently. The corporate form and its many variations can be used to create economically viable businesses that benefit workers and communities, that are good stewards of the environment, and that demand capital in service of stakeholders.

Giving workers a voice in their companies, if not an ownership stake, has a role to play in breaking the extractive cycle corporate American has been in for much of modern history. Positioning workers so that they have a say makes sense from a practical point of view too. Without workers corporations don’t create value for anyone. Workers are the face of a business, they deal with customers and understand the day-in and day-out operations in a way the C Suite cannot. Placing workers on corporate boards also creates more accountability for companies that claim to consider all stakeholders in decision making. As Lenore points out in her article, giving employees board representation puts stakeholders on the board, creating a board that inherently governs for its stakeholders and not just shareholders. Often self-interest is viewed negatively, but when you consider creating a board where a variety of self-interests are represented, it can be leveraged to accomplish measured and equitable outcomes that benefit society as a whole.

Got Foreign Investors? What you need to know about Regulation S

Raising Money Abroad

Picture this – your start-up is ready to raise seed money; you think your business has international appeal and you want to open the round up to foreign investors. This might be the right strategy for your business, but have you thought about securities compliance? Will you also open the round to US investors? How will you attract the investors? Will the prospective investors purchase securities with transfer restrictions? These are all important questions to ask when you’re considering taking on foreign investors and you want your securities to be exempt from registration requirements.

Reg S

Regulation S of the Securities Act of 1933 (“Reg S”) provides an exemption from registration for “offers and sales of securities outside of the United States.” Companies issuing securities pursuant to Reg S must comply with certain restrictions on their offerings. Such restrictions are put in place to ensure that the exemption is not being used to improperly circumvent registration requirements and sell unregistered securities in the US. Reg S is comprised of five rules:

  • Rule 901: General statement of regulation
  • Rule 902: Definitions
  • Rule 903 and 904: Safe harbor rules
  • Rule 905: Resale limitations on equity securities issued pursuant to Reg S exemption

The focus of this post is the Category 3 safe harbor rule provided by Rule 903, which is available to US companies issuing securities to foreign purchasers. To qualify the following conditions must be satisfied:

  1. It must be an offshore transaction.”

Rule 902 defines “offshore transaction” as an “offer not made to a person in the United States…and at the time the buy order is originated, the buyer is outside the United States, or the seller and any person acting on its behalf reasonably believe that the buyer is outside the United States.”

  1. There cannot be any “directed selling efforts” in the United States.

Rule 902 defines “directed selling efforts” as “any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the securities being offered in reliance on…Reg S.” This restriction is primarily focused preventing any advertising or offering of the securities in the US when the securities are being offered pursuant to Reg S. This ensure that the unregistered securities are only offered and sold to foreign purchasers and that a US purchaser will not learn of the issuance through any kind of public advertisement or publication in the US.

  1. The securities will be subject to a distribution compliance period and future sales will be restricted.

Finally, securities issued pursuant to the Category 3 safe harbor of Rule 903 are required to observe multiple transfer restrictions. Such securities are subject to a distribution compliance period, the length of which is dependent on whether the offering is for debt (forty days) or equity (one year) securities. During the compliance period, the securities cannot be re-sold to a US purchaser (with limited exception, discussed below). Further, any sale made prior to the end of the distribution compliance period is required to comply with the following requirements:

  1. The purchaser must certify that it is not a US person or that it is a US person purchasing the securities pursuant to an exemption from registration under the Act;
  2. The purchaser of the securities agrees that it will only re-sell the securities pursuant to Reg S or another qualifying exemption under the Act;
  3. The purchase agrees not to engage in a hedging transaction;
  4. The security instruments bear restrictive legend clearly stating the above-mentioned restrictions on transfer; and
  5. One or more of the charter documents of the issuer, i.e., its Operating Agreement or Articles of Organization, must explicitly state the transfer limitations to which its securities are subject.[1]

Raising money is a complex process but taking the time to do it properly is critical. Failure to comply with securities regulations can lead to complex and costly enforcement actions with consequences ranging from fines to criminal charges. The good news is that these consequences can be avoided by creating a fundraising strategy that addresses securities regulations and complies with the applicable requirements.

[1] 17 C.F.R. 230.903(b)(3)(iii)(B)(1-4)

Jason Wiener | p.c. Named “Best For The World”

Jason Wiener | p.c. is proud to announce that we have been named “Best For The World” by B Lab for the second year in a row. This year’s award focuses on governance within the legal industry.

We have been a certified B Corp for three years and a Public Benefit Corporation for nearly four years. Jason Wiener, Principal at Jason Wiener | p.c., had this to say: “We are honored to join such impressive company with others recognized as best for the world.  This is a very meaningful distinction. We will continue to strive to advance the notion that business can be a force for good.”

We are intentional about working with and advising companies that are progressive in their approach to business. Whether it be a company committed to having a net positive environmental impact or a small business that wants to implement democratic ownership principles, we are helping our clients innovate their business structures and governance practices to achieve better outcomes for employees and communities.

As a firm, we re-visit our values and mission statement weekly to discuss how we are living out our values and where challenges arise. This results in an open dialogue among everyone at the firm about how we can better serve our clients and what impacts our actions are having on our community at large. Our most recent community initiative, the Legal Café, came out of this open dialogue. The Legal Café is a free event, inspired by the Sustainable Economies Law Center, where we invite community members to join us for a short presentation on a legal issue and an hour-long small group Q&A with our attorneys.

The practice of regularly discussing our firm values keeps our work fulfilling and reminds us of the positive impact we are making while also keeping us honest about where we can improve. It has been a wonderful tool for reflection and goal setting. Out of this and other practices we are creating a workplace that rewards everyone for their efforts, learns from the past, and creates effective decision-making structures.

Perhaps the most important part of being a social enterprise is continual evaluation of current practices with a critical eye to where we can improve. Through retreats, retrospectives, and weekly team huddles, we evaluate our impact internally and externally—constantly looking for ways to improve. As a result, our firm takes an iterative approach to client work; we are not hesitant to try new things. This approach keeps us engaged, flexes our creativity, and ensures that we are delivering innovative solutions for our clients and community.

As we grow, we are excited to also grow our community focused offerings. One long-term goal we have identified is to increase the amount of pro bono work we do individually and as a firm.  To do this, we plan to continue hosting our Legal Cafés, explore pro bono partnerships, offer one-on-one consultations to low-income entrepreneurs, and increase our use of technology in a thoughtful way that will allow us to serve a more diverse set of clients.

We are excited and honored to receive recognition for our work as a B Corp. To anyone new to this space, there are a variety of practices that have led us to where we are. Don’t be afraid to experiment and actively engage your employees, vendors, and customers in the discussion about ways to improve.  Give out much responsibility, trust people—then listen to and implement the feedback.  Together, you will have more impact than you could individually.

Colorado is leading the way in cooperative law

There are lots of reasons to love Colorado – the sunshine, the mountains, Colfax Avenue and all its splendid weirdness, just to name a few. While those things are all great, the coolest thing about Colorado is that it’s leading the way in innovative uses of the cooperative structure, in no small part thanks to our incredibly flexible cooperative statutes. Any business can be a cooperative in Colorado. This means that when we talk with a new client about entity formation, in addition to discussing the merits of traditional business structures, we also get to educate them about cooperatives and help them decide if it might be the right structure for them. While that in itself is pretty cool, Colorado is one of the few states that has adopted the Uniform Limited Cooperative Association Act (“ULCAA”). The ULCAA gives cooperatives the flexibility that is most commonly associated with LLCs, including having investors that exclusively make capital contributions. Having an investor member class can make the cooperative structure feasible for companies that would normally have to forgo it because they need to raise outside capital on more flexible terms. As lawyers, this means we get to collaborate with our clients and come up with creative solutions for structuring the investor class, creating profitable exits when there is no public offering or sale on the horizon, and attracting investors – all while keeping the cooperative mission at the forefront. Basically, it equates to a lot of intellectual gymnastics and brainstorming sessions, which is when being a lawyer is the most fun and where we offer the most value to our clients. If I’ve piqued your interest, my colleagues, Linda and Jason, have written a wonderful blog that breaks down in more detail why Colorado is leading the way in cooperative law. A big thank you to Fifty by Fifty for publishing the blog and producing great content to advance employee ownership.

Creating the Workplace We Want

Management and operation of a law firm has taken many forms over the years and we are exploring new, innovative ways to run our firm. We are experimenting with the use of democratic principles, Teal, and self-management to develop a style that works for us and our clients. Earlier this week, Jason sent an article around to the team that highlighted The Wellington Community Law Centre (WCLC), a New Zealand law firm that went from a traditional hierarchical management system to fully self-managed in six months. Our firm has been discussing and implementing self-management techniques and it was inspiring and encouraging to read about WCLC’s journey. While reading the article I was tripped up by the reference to “advice process.” I had never heard the term before and we haven’t formally chosen a decision-making process to adhere to, so I did a little research. In a nutshell, advice process is an alternative to top-down and consensus decision making. Instead of executives or leaders making decisions, the employee who notices the problem or opportunity is empowered to act on that knowledge and becomes the decision-maker. The decision maker must seek input and advice from the relevant team members, leaders, and stake holders, but is ultimately responsible for creating a proposal and deciding what action to take. The process resonates with me because even as the least experienced member of our firm, I feel empowered to make decisions and suggestion for improving processes or creating new ones. I’m comfortable approaching the more senior attorneys to discuss my ideas and get their feedback and I’m able to pursue projects that interest me and be an active participant in my career development.

My favorite quote from Geoffrey Roberts, the general manager of WCLC, was, “When you treat people with high levels of trust, then they will live up to that. They will give you much more than you can imagine. Anecdotally, I argue that high levels of trust result in high levels of engagement and flexibility.” Perhaps more than anything else discussed, I feel that building trust is critical. For me, feeling trusted makes me feel like I can make mistakes and that I will get productive feedback that will help me grow as a lawyer. Having trust also means that I’m not afraid to come forward when I have made a mistake or to be held accountable for a decision I made. One way our firm fosters a trusting environment is through quarterly retrospectives. Retrospectives give us the chance to reflect on what is and isn’t working – they also help remove the negative connotations from accountability. Instead of accountability being scary, it simply becomes an opportunity to celebrate a win or learn from a decision that didn’t work out.

As a member of a law firm that is treading an unconventional path, I love seeing what WCLC has been able to accomplish. It gives me hope for the future of the profession and it’s nice to know our firm is in good company.

Choosing the Right Entity for Your Business

Last week our team held its first legal café at Green Spaces in Denver. We welcomed a group of approximately thirty entrepreneurs and discussed the nuances of entity choice. Our team was excited for the launch of what we hope will become a mainstay for the firm and a valuable resource for our community. We selected entity choice as our first topic because this early decision can often have far-reaching consequences for businesses. The right entity is critical for many aspects of the business, from protecting the social mission to attracting outside capital. Our hope is that we can help early stage entrepreneurs avoid the pitfalls of choosing an entity not well suited to their long term vision. To that end we created this presentation with an overview of entity types and strategies for choosing the right entity. Those who attended the legal cafe also had the opportunity to participate in an hour of small group Q&A with our team.

The event exceeded our expectations and our team is looking forward to hosting future legal cafes that provide useful information to entrepreneurs at all stages of developing their business.

Increasing Access to Legal Services – Process Improvement and Automation

I went to law school because I wanted to make a difference. Initially, I though I would focus on environmental issues, but through a variety of courses and internships, my focus shifted to economic inequality and access to justice. This new focus piqued my interest in how technology could expand access to legal services and led me to Michigan State University College of Law’s LegalRnD program. The program offers several courses, and as a 3L I took a course call Litigation: Data, Theory, Practice and Process, with Daniel W. Linna Jr. I had no idea what to expect, but I was excited for a hands on, practice focused class. I was not disappointed; Professor Linna introduced new concepts and challenged the traditional ideas about legal services throughout the class. We experimented with several process improvement techniques including Lean Six Sigma, Kanban Boards, design thinking, and process mapping as tools to solve for inefficiencies in legal processes. He challenged us to think about legal issues and client needs from a process point of view and was constantly asking how our proposed improvements would add value for clients. By understanding the process, we could remove most of the inefficiencies without technology and when we did employ technology, we had a crystal-clear understanding of why it was necessary and how it improved the process.

As part of the class we were asked to re-imagine a legal process and automate it using ThinkSmart’s (a legal software developer) legal workflow automation tool, TAP. I chose to create a new system for referring pro bono work to attorneys. I created an automated workflow that aggregated attorneys’ availability for pro bono work, areas of legal expertise, contact information, and location into a database that would be hosted by the State Bar Association. The rest of the process is automated with inputs from legal aid offices looking to refer clients out and attorneys in the State Bar database. ThinkSmart spotlighted the project on their blog in February.

I’ve carried many of the skills I learned in the Litigation course into my daily practice. I look forward to continuing to leverage process improvement and technology to deliver better services to our clients, create organizational documents that are legally sound and user friendly, and to evolve the practice of law for the 21st century.

 

Electing Public Benefit Corporation Status as a Limited Cooperative Association: Limiting Director Liability

All certified Colorado B-Corps, organized as Colorado Corporations or Cooperatives, are required to become Public Benefit Corporations (PBCs) by April 1, 2018. Since a number of our clients are B-Corps, we’ve been immersing ourselves in the finer points of the Colorado Public Benefit Corporation Act (PBCA), particularly as applied to Limited Cooperative Associations (LCAs). As originally enacted, the PBCA did not allow LCAs to elect PBC status despite Article 55 and Article 56 cooperatives being able to do so. It appears that the omission was simply an oversight by the drafters that was recently corrected in an amendment that allows LCAs to elect PBC status. While this was a needed amendment to the PBCA, the PBCA is not as cleanly applied to LCAs as to Article 55 and Article 56 cooperatives.  Unlike Article 55 and 56 cooperatives, the Colorado Business Corporation Act (CBCA) is not used as a gap filler for the Uniform Limited Cooperative Association Act (ULCAA), which governs LCAs. This presents a challenge to limiting director liability for LCAs under the PBCA. The PBCA is written with the corporate form in mind and references the CBCA with regards to director liability, but is silent as to how use of the PBC form will affect director liability when the entity is an LCA.

Section 7-101-506 of the PBCA lays out the duties of the directors of a PBC:

(1) The board of directors shall manage or direct the business and affairs of a public benefit corporation in a manner that balances the pecuniary interests of the shareholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit identified in its articles of incorporation.

(2) A director of a public benefit corporation:

     (a) Does not, by virtue of the public benefit provisions of section 7-101-503 (1), have a duty to any person on account of an interest of the person in the public benefit identified in the articles of incorporation or on account of an interest materially affected by the corporation’s conduct; and

Additionally, it permits a PBC to expressly state in its articles of incorporation that a “disinterested director’s failure to satisfy this section does not, for the purposes of section 7-108-401 or 7-108-402 or article 109 of this title 7, constitute an act or omission not in good faith or breach of the duty of loyalty.” The problem for LCAs is that this provision only contemplates a corporation using the PBC form as evidenced by its reference to “articles of incorporation” and the statutory references to the CBCA. The concern for an LCA organized using the PBC form is that its directors may not be protected by the limiting language as it is currently written in the statute. Further, simply altering the express language provided in the PBCA to reference the analogous sections in the ULCAA could render the language unenforceable because it does not track the statutory language of the PBCA. This is not a concern for cooperatives organized under Article 55 or Article 56 because both Articles use the CBCA as a gap filler. ULCAA, on the other hand, was enacted as a stand-alone statute and there was no intent to use the CBCA as a gap filler.

The ideal solution is an amendment to the PBCA that makes the limiting language inclusive of LCAs. In the interim, it is prudent for LCAs using the PBC form to include the limiting language as it is written in the PBCA and include another provision that clearly expresses the intent of the LCA to apply the ULCAA provisions that are analogous to those CBCA provisions regarding limiting director liability. This statement of intent should be drafted to give parties, a court and other interpreters clear guidance to resolve conflicts of interpretation between the PBCA, ULCAA and the Articles of Organization. As a firm, and a PBC, we are invested in the implementation of this statute and look forward to following and participating in its evolution to meet the needs of the businesses that are utilizing the PBC form.